Chart of the Month August: Foreign Investors Still Holding Back
Against expectations, there has been no change in the restraint shown by foreign investors. At only around 32%, their share of the commercial real estate investment market in the first half of 2023 was significantly lower than the average for the past ten years. But challenging times also bring opportunities.
Currently, there is a high level of restraint overall: for example, domestic and foreign investors invested only around EUR 9.9 billion in commercial real estate in the first half of 2023. This means that the volume is roughly at the same level as in 2012 and corresponds to only 45% of the ten-year average for the first half of the year.
Further moderate interest rate increases announced by the European Central Bank will help determine developments on the investment market. The current difficult phase of price formation, i.e. the determination of a spread in line with the market between initial yields for new real estate investments and risk-free fixed-interest government bonds, will certainly remain with the market until at least the end of the year. Over the year, real estate yields are expected to rise even further. The expected rise in yields should be much more moderate compared with the rise between mid-2022 and today.
At only around 32%, the share of foreign players in the commercial real estate investment market in the first half of 2023 was significantly lower than the average for the past ten years (43%). However, opportunistic sources of capital are already waiting in the wings; in the medium term, there are signs of a significant increase in the share of foreign investors again. Particularly in the area of corporate investments or takeovers, we expect foreign capital to make an increased appearance.
Selling pressure due to increased refinancing costs and devaluations of portfolios, especially for project developments, will increase significantly and could stimulate the investment market. The insolvency of the Centrum Group or the difficulties of Euroboden are probably only the tip. Large financial investors such as Blackstone already announced at the beginning of the turnaround in interest rates that they would again invest more in Germany, but have not yet made an appearance. Takeover plans for commercial project developers, analogous to the plans of the Korean fund manager Shinhan and Nox Capital Holding regarding the residential privatizer Accentro, could soon be on the agenda.
Challenging times also bring opportunities, the glass is half full.
Contact person: Andreas Wiegner, Project Manager at bulwiengesa, wiegner@bulwiengesa.de
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