By Tom Leahy on October 3rd, 2017
Strong investor demand has made German property prices the fastest growing in Europe according to the recently published RCA CPPI (commercial property price indices).
The growth rate of property pricing across Germany in the last 12 months has been exceptional in comparison to other European markets, especially if one looks at the main A Cities of Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg, Munich and Stuttgart. Property prices in these A Cities grew by 12.4% between June 2016 and June 2017, outstripping growth in the main Nordic markets, London, Paris and Amsterdam.
German prices started to rise rapidly from 2015 onwards, coinciding with the commencement of the European Central Bank’s huge quantitative easing program, a large influx of capital into Europe from the U.S. and Asia, and expansion in domestic investment activity. By contrast German price growth from 2010 to 2014 was moderate and lagged increases in other major European markets during that period. Therefore German A Cities prices are only 21% above their pre-Global Financial Crisis peak, while Paris prices are up 39% and Nordic A Cities up 34%.
The U.K.’s vote to leave the European Union provided a fillip to Germany, making the market look more attractive by comparison to some investors, even if the decision hasn’t yet dramatically affected U.K. prices. Frankfurt now seems to be the market that will benefit most as banks shift operations outside London, and Germany is seeing higher levels of cross-border investment than at any period since 2007. Additionally, German institutional spending is at record levels as capital pours into the sector in this low-rate environment.
The main drag on the market, now that the federal elections are out of the way and Angela Merkel remains Chancellor, seems to be the availability of stock. Price growth in the central areas of the A Cities has outpaced the broader metro areas, showing where investor preference sits. Therefore, capital continues to be deployed in second and third tier cities and in alternative property types. Investors are also turning to development and the volume of forward funding (the purchase of assets still under construction) totaled a record €10 billion ($11.8 billion) in the last 12 months.
With a Brexit-related shadow hanging over the U.K. and President Macron facing an uphill battle to drive through French employment reforms, Germany seems certain to retain its place in the center of Europe’s property market for the time being.