No danger of bubbles

Interview with Gero Bergmann, Member of the Board of Management, Berlin Hyp on his thoughts on the outlook of the German Real Estate Market in the next 12 months. Gero is attending Deutsche GRI 2016 and co-chairing the session on Senior Debt.

German Real Estate still seems a treat for foreign buyers, especially in the big 7, whereas German investors venture out. Where do you see the potential in the next 12 months?
The German real estate market remains highly attractive due to high security, robust long-term yields and good financial sustainability. Especially premium and high quality properties in prime locations attract investors. However, we see potential in the so-called ‘B’ regions where the price level is still relatively low as well as in previously disregarded asset classes.

How significant are the issues associated with the high level of immigration we have seen last year?
The increase of refugees coming to Germany has been very significant and entails a number of challenges for the real estate sector. It requires the development of temporary accommodations as well as investments in residential properties. In 2015 Berlin had a regular increase in population of approximately 45,000 people. Additionally, around 57,500 refugees have been officially registered in the capital. However, we estimate that only 8,000 residential units have been built in the same period, leading to a significant housing disparity.

We have become used to a low interest rate environment, benefitting investors. Are lenders prudent enough to prevent a bubble? Is the lending landscape in a healthy state?
Most of the banks are very careful with their risks. Consequently, I don’t see the real estate sector endangering the financial markets at the moment. In some individual locations inflated prices are evident. However, this does not justify anticipating a general price bubble on the market.

There is the lack of core products compared to non-core. Is more “new” development needed and where? How much risk do Investors accept?
Whereas in the previous years, the majority of the transactions involved existing properties, “new” development properties emerge to fulfill the need for core products. The refurbishment and revitalization of previously unused or underused space becomes more and more important in order to fully utilize the potential of the limited core space.

You have been part of GRI many times. What’s in it for you?
For me GRI is an excellent opportunity to gather and exchange with other German and international real estate lenders, investors and developers. The interactive discussions enable diverse debates about hot topics in the real estate sector as well as networking and maintaining valuable business relationships.

Deutsche GRI 2016

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Erstveröffentlichung: Deutsche GRI, Februar 2016