Since the financial crisis, the buoyant German economy has shown solid and consistent growth. As a result, we have seen increasing interest from investors into German Real Estate. This has included new investment into its ‘light industrial’ sector, the so-called ‘Unternehmensimmobilien': a distinct asset class of German multi-use and multi-let commercial properties, that is home to the heart of the Germany economy.
Despite this increased interest, understanding of the sector remains rudimentary outside of Germany. Recent talk of a ‘slowdown’ in the Germany economy has come in part from trends in the PMI which is based on sentiment from purchasing managers throughout Germany. Many of these purchasing managers sit within the automotive industry and we believe the issues around automotive are at present skewing the true underlying trends.
Commentators sometimes miss the fundamentals that underpin the strength of the Unternehmensimmobilien asset class and the wider German commercial real estate market. The Unternehmensimmobilien remains a uniquely attractive proposition for investors.
What do you mean by the term ‘Unternehmensimmobilien’?
There’s often significant confusion as to what constitutes the light industrial sector or Unternehmensimmobilien and you hear different responses depending on who you speak to. At Sirius, when we use the term ‘Unternehmensimmobilien’ we are referring to four distinct areas:
- Produktionsimmobilien – ‘light industrial’ manufacturing
- Logistikimmobilien – logistics i.e. warehousing and goods distribution
- Gewerbepark - business parks that are often found on the outskirts of German cities and towns
- Transformationimmobilien – converted or revitalised commercial parks, these are typically former production facilities or industrial sites with potential for reuse
The four categories are characterised by their third-party use, their location on the edge of town, potential for reversibility of use and their multi-tenant structure. This means they’re flexible both in terms of usage but also in terms of tenants and tenant size.
Why is it so attractive as an asset class for investors?
There’s no other asset class like it in Europe. If you buy smart – which we do at Sirius, of course – you can purchase secondary stock for less than half of the replacement cost. The reason for this is that Germany has very high building standards which means new buildings are engineered to an exceptional standard, which makes them expensive to build. Once these buildings are twenty to thirty years old, and unless you have a platform to manage them, they often become underutilised and can be picked up for around half the cost of a replacement.
That means there is a real opportunity, if you have the right platform, to rejuvenate these properties, provide tenants with new paid for services and still the end user will pay substantially less than they would if they were moving into a new building, even with service charges on top.
In addition to this, these assets can be picked up in all major, highly autonomous regions across Germany and specifically around the “big seven” cities. This means as an asset class it has economic resilience for many reasons including the point that unlike for example the United Kingdom, economic activity is evenly spread across 7 major cities in Germany as opposed to just taking place inside the M25 or near to London, as is the case in the UK.
Will the economic slowdown hit the” Unternehmensimmobilien”?
The British press is sometimes eager to in report a slowdown in the Eurozone and in particular its major economy, Germany. The German economy is in its tenth straight year of economic growth, with unemployment close to a record post-reunification low. We believe there could be problems looming in parts of the manufacturing sector, particularly the automotive industry, but automotive it is a much smaller element of the German economy than it was 20 to 30 years ago. The cost of borrowing throughout the Eurozone remains y low and the economic fundamentals in Germany remain sound, Therefore in Germany we believe we can expect relative continuity in fiscal policy and solid growth in the service and construction industries which will in turn enable German Real Estate to continue to consolidate its position as the ‘safe haven of Europe’ for real estate investors.
I’d be delighted to help answer any questions on the Unternehmensimmobilien or Germany’s future economic outlook?