According to Savills, developers acquired in excess of 60 properties in Germany about half of which were sites in 2009. This year they remain active, primarily in the retail sector.
According to Savills, developers acquired in excess of 60 properties in Germany about half of which were sites in 2009. This year they remain active, primarily in the retail sector, however, due to the numerous restrictions investment opportunities are currently facing development schemes have become more difficult to realise.
The international real estate advisor reports that owing to the continuing difficult overall financial and economic situation borrowing costs have significantly increased. Notably in the case of development projects lending practices have tightened. Credits are granted on the condition that a development is for the most part pre-let (normally at least 50%) and that developers provide sufficient equity which is no small challenge notably for medium-sized and small developers. On the other hand there are currently many highly capitalised investors looking without success for suitable investment opportunities beyond the core segment. In the German investment market prices are exceptionally stable by international comparison and there is frequently a gap between buyers' and sellers' price expectations. As a consequence, investors may not achieve their target yield.
Lars-Oliver Breuer, Managing Director of Savills Germany and Head of Investment comments: “Due to this situation financial partnerships have become increasingly important for development schemes. The financial partner provides the developer with the necessary capital and in turn has the chance of earning double-digit yields.”
Savills confirms annual yields typically amount to 10-20% and in some instances even exceed this figure offering a response to the currently rather opportunistic demand. The majority of investors are funds, family offices and private investors but in principle any highly capitalised investor looking for investment opportunities beyond the core segment is a potential partner. The firm therefore expects the importance of financial partnerships to increase further throughout the year as alternative funding options will be difficult to identify in the foreseeable future.
Last year developers invested approx. €1.1 billion in the German commercial property market. Despite this figure representing a decrease in excess of 30% compared to 2008, developers increased their share in the total investment volume to approx. 10% with only property funds and private investors holding a higher share. This is the fourth time in a row that development companies were able to increase their share – in 2005 they accounted for only slightly in excess of 2% of the total investment volume. Over the last five years their investment volume totalled almost €12 billion.