Real estate has an enormous influence in Germany, accounting for 20% of the nation’s economic output and 10% of its jobs. But higher interest rates, soaring construction costs and even proximity to the Russia-Ukraine war have taken a big bite out of Germany’s domestic property market.
Reuters reported that construction starts for residential and commercial properties in Germany during the first half of 2023 plummeted by 47% compared to the previous two-year average. The nation’s largest real estate investor, Vonovia, lost $2.2 billion in second-quarter 2023. And German commercial real estate transaction volume in H1 2023 finished at one-third the level of its five-year average, Bloomberg reported.
All of this goes to show that German investors are being quite cautious these days about where they place their money. A normally reliable source of capital into U.S. commercial real estate, Germany recently posted one of the largest pullbacks in a global investment market that’s full of them.
Germany was the No. 3 source of foreign capital into U.S. commercial properties in 2021 and No. 5 in 2022, according to MSCI Real Assets. For the year ending in Q2 2023, however, it dropped to No. 9. During these 12 months, German investors purchased only 14 assets on U.S. soil and their aggregate volume of $696 million was down 91% year over year.
Still, there have been a handful of noteworthy acquisitions by German investors of late. The largest of these was announced in October 2022 when Frankfurt-based Union Investment and a Seattle-based partner bought an office complex in Sunnyvale, California, for $222 million. The property features a new four-story office building that boasts LinkedIn as its main tenant.
Class A multifamily properties remain highly prized targets for overseas investors, and the BVT Group (headquartered in Munich and Atlanta) got its hands on a sprawling apartment community that’s being built in Charleston, South Carolina. The project, which is expected to be finished in the latter half of 2024, will include 336 luxury units. The deal was valued at $96.4 million, MSCI reported. BVT’s U.S. division now owns 30 multifamily assets totaling 9,200 units.
German investors closed three other deals valued at $75 million or more during the year ending this past June, MSCI reported. Hamburg-based ParkProperty Capital shelled out $91 million in July 2022 to acquire a posh multifamily community in Atlanta. The property is within walking distance of many high-paying jobs at Piedmont Hospital.
In January 2023, Munich RE (a multinational insurance group) bought a similarly pedestrian-friendly mixed-use building in downtown Durham, North Carolina. The property is a repurposed tobacco factory and warehouse that now includes 247 apartments and 20,000 square feet of retail space. The price tag was $89 million, according to MSCI. And Munich RE teamed with CBRE Investment Management this past May to nab another Class A multifamily property in Dallas for $77 million.
Although German players have stayed on the sidelines of late, it’s a reasonable bet that they’ll return to action once market conditions improve. Notably, Commerz Real (the real estate wing of Commerzbank AG, Germany’s third-largest bank) recently opened offices in New York City and Washington, D.C. The company has had an on-and-off relationship in the U.S. dating back two decades, and according to one of its fund managers, it has an expressed interest in America’s gateway cities. ●