pie - interview wvb centuria march 2013
TRANSCRIPT
70 PROPERTY INVESTOR EUROPE l Edition 293 l March 2013 l www.pie-mag.com PROPERTY INVESTOR EUROPE l Edition 293 l March 2013 l www.pie-mag.com 71
GERMAN RESIDENTIAL PROPERTY BREAKFAST GERMAN RESIDENTIAL PROPERTY BREAKFAST
Values to rise but no bubble brewing !e new listing of German property "rm LEG by Goldman Sachs investment fund Whitehall and Per-ry Capital, one of a handful of major European IPOs since the credit crisis, has put the residential property market in Europe’s largest country "rmly in the spot-light. But despite strengthening investor demand for property in undersupplied cities and signs more lo-cals in hotspots such as Berlin want to buy their own properties, the panel dismissed concerns of a bubble. !ey said the market is coming back in line with the rest of Europe; German property is reclaiming some of its pricing power.
Unlike much of the rest of Europe, where cheap lending from banks fuelled a boom in property buy-ing, which then turned to bust as lenders worried whether they could get their money back, the Ger-man property market has remained stable over the last three decades, thanks in large part to German consumers’ unwillingness to put themselves in debt.
“I think what we are seeing in Germany is a struc-tural re-pricing of the market up to a level where it was in the mid-’80s, when Germany was a far more expensive country relative to its euro neighbours,” commented Groom. Accommodation accounted for about 40% of the average person’s income in West Berlin in 1992, but today is just 22% of their outgo-ings. !at compares with around one third of income in London, he estimated.
Bourbonnais added that growth in Berlin is no #ash in the pan and will continue for the next 10 years. “Demand is increasing, so values are also going up. If you look at certain cities in Germany there is a continued increase in population which drives fun-damental values. So when people say there is a bub-ble I don’t believe it. !ere is fundamental growth in many cities.”
Corestate’s Burns said the absence of the property boom and bust in Germany over the last couple of decades, endured by so many of its European neigh-bours, is attracting investors into its housing market now as a safe haven. “!ey can also look back histori-cally and feel a lot more comfortable vis-a-vis the UK
or Spain that there hasn’t been a bubble in the under-lying property values.” And with many regions still undervalued, the prospect of a price bubble emerging in the future remains low, said Corpus Sireo’s Ed-wards. !e group manages more than 40,000 residen-tial units for its investors. “My personal view is that values will continue to rise, returns will be stable and volatility will remain low,” Edwards said. pie
Berlin booms, others op-portunities also availableA continued in#ux of people to Berlin and the rede-velopment of swathes of the German capital has sin-gled out the political hub as one of hot spots for growth in property market. However, that has been a long-time coming, said Skjerven, CEO of his own Berlin-based Skjerven Group.
Skjerven "rst invested in Berlin in 2006 on behalf of a Norwegian group but it wasn’t until 2010 that population growth "lled existing vacancies and prop-erty values and rents began to pick up. Some 30,000-35,000 people are now moving to the city every year, creating demand for 15,000-20,000 new homes. But only about 4,000 units are being built, all at the top-end of the market, creating the undersupply that is driving up prices. In the last two years, the asset class has caught up with its business plan, compensating for its "rst four years of underperformance, Skjerven said. “!e Berlin story will run at least "ve years more in terms of rent development and it will run "ve to ten years more when the Berliners are starting to buy their own apartments,” he added.
Centuria Real Estate Management has been work-ing with large clients to redevelop large apartment blocks in prime locations, and selling o$ units to people eager to own their own homes. “!ere is huge,
huge demand from people want to buy their own condos. !ey know values are increasing in Berlin and will steadily increase,” Bourbonnais said.
But far from being the only engine room for Ger-man residential, other locations create great opportu-nities, the panel said. “!ere is room for improve-ment in a lot of other areas. Even if you go to B location close to city centres… these are giving inves-tors huge opportunities to increase value,” said Charles Smethurst, CEO of Hannover-based Dol-phin Capital, which specialises in refurbishing listed buildings for luxury accommodation.
More locations will pro"t as the inexorable move to urban living continues, said Groom, creating un-dersupply of housing in eight or nine of the largest cities. Some 12,000 people moved to the German "-nancial capital Frankfurt last year, creating demand for about 7,000 new homes, but only 2,500 were built. As a result capital values rose between 14% and 18% - as well as Stuttgart and Munich - with rental values running only slightly behind. Even in East Germany, which some dismissed because of low in-come levels, falling population and high vacancy rates, opportunities exist. “I think it’s an excellent opportunity if you can buy things below replacement cost. I’m not very worried about people building a lot more stu$ and competing with me. If you manage it correctly and put a lot of capex in, even in negative demographic cities you can have a very nice business with very nice yields if you buy well.” pie
Investors drawn by returns with few risksWith yields from "xed income investments stub-bornly low and equity markets plagued by volatility, investors large and small have been reassessing prop-
Jones Lang LaSalle’s Andrew Groom (top left) makes a key point at PIE’s packed German Residential Property Breakfast in London last month, and Dolphin Capital CEO Charles Smethurst (top right) outlines his company’s business model focuse on monu-ment protected upmarket resi-dential. Audience members (cen-tre) swap o! experiences during networking. Einar Skjerven, CEO of Berlin-based Skjerven Group (above) describes the opportuni-ties in the German capital.
German Residential Property Breakfast: No fear of bubble, reclaims rightful place, pricing
PIE’s German Residential Property Breakfast brought five experts to London on 31 January 2013 to discuss the outlook for the sec-tor as investor money continues to flood in. Held at law firm DLA Piper’s London o!ces, PIE welcomed Francois Bourbonnais, di-rector of Centuria Real Estate Management, Luxembourg; Phillip
Burns, CEO, Corestate Capital Advisers, London/Zug; Corpus Sireo MD Douglas Edwards, Luxembourg; Andrew Groom, head of Jones Lang LaSalle valuation and transaction advisory Germany, Frankfurt; Einar Skjerven, CEO, Skjerven Group, Berlin; and Charles Smethurst, CEO, Dolphin Capital, Hannover.
GERMAN RESIDENTIAL PROPERTY BREAKFAST
erty investments, attracted by its better returns and relatively few shocks.
“!ere is huge interest,” said Groom, whose JLL division values some %30bn of residential assets in Germany annually. !e interest comes from private equity groups and large pension fund and insurance groups. “We are seeing a lot more of this pension fund and insurance money looking to be invested. In the absence of yield anywhere else, there will be more and more of this money coming in on the institu-tional side.” Some two-thirds of the money coming into German residential comes from domestic Ger-man institutions, he added.
But family o&ces and high net worth individuals are also looking to plough money into residential, said Corpus Sireo’s Edwards, though sovereign wealth funds that have been hoovering up large commercial and retail assets around Europe have largely steered clear as investments are too small. Some Middle East-ern investors have turned their backs German prop-erty investments because of fears of losing money. “!ey just don’t want the risk of putting money into mid to low end resi, higher up on risk curve. !ey have been completely burned,” said Bourbonnais. On the other hand, large Canadian investors, such as Caisse de dépôt et placement du Québec, are allocat-ing more of their capital to real estate, which will cre-ate more demand for residential assets.
With interest rates expected to remain low as Eu-rope grinds its way through austerity and deleveraging to recovery, the money #owing into the sector will stay, Bourbonnais said. “If we continue in this malaise for the next "ve years, which I think is highly likely, then I think the money will be very sticky. It provides an interesting yield premium for people.” pie
Germany, a nation of home owners?While all agreed on the attractive outlook for Ger-man residential property in general, the panel was split on whether the population would become ex-tensive home owners. !e level of ownership, among Europe’s lowest at 43% compared with the UK at over 70%, will rise as long as interest rates remain low, said Groom.
“If we get to 50%-55% in the next six to seven years that would be a very good move, and it’s very much dependent on interest rates remaining low and o$ering people the opportunity to compare and con-trast rental rates versus capital values,” he told the PIE Breakfast. Increased immigration will keep up-ward pressure on rents, driving more people to invest in their own homes, added Bourbonnais. In Berlin, where only about 14% of the population own their homes, Skjerven expects ownership to increase by about 1pt a year. However, the rest of the panel thought Germans will in the main remain rental ten-ants, not owners. “If you look at property redevelop-ment we have a booming market, but the ownership percentage has not really inc dramatically,” said Sme-thurst.
Burns noted that the main reason for German hesi-tancy to own homes is because the nation is culturally cautious about spending and taking on large debts. “I think they feel vindicated looking at the UK, Spain, the US, where the whole culture is predicated on ‘you must own your own home, you must have a stake in the ground, you must look after your own pension through your own house equity’. !at hasn’t worked out that well in a lot of places.” With high levels of personal savings, Germans are being attracted to in-vest in property, but not necessarily their own. “!ey would rather own a third party property than live in it themselves,” Edwards said. pie
PIE’s German Residential Prop-erty Breakfast attracted over 100 delegate registrations, with professionals eager to hear more (top left) about the key asset class. Centuria MD Fran-cois Bourbonnais (top right) described his company’s ap-proach, and Corestate’s Phillip Burns (middle) also explained where his firm sees opportuni-ties in the sector. Audience members (above) were eager to ask their own questions.
BULLETIN BOARD
72 PROPERTY INVESTOR EUROPE l Edition 293 l March 2013 l www.pie-mag.com PROPERTY INVESTOR EUROPE l Edition 293 l March 2013 l www.pie-mag.com 73
Diary dates upcoming in 2013March 12-15,
Tuesday-Friday
MIPIM 2013,
Cannes
This event draws upon its unique international
coverage and reputation - plus sunny Cannes
weather! – to attract influential decision
makers, o!ering them access to a showcase of
development and investment projects. A key
date in the European property calendar.
More information: www.mipim.com
April 23, Tuesday
PIE French Urban Opportuni-
ties Briefing, London
In an afternoon event, PIE hosts
the latest in its highly popular series of
expert seminar panel discussion with senior
real estate executives. PIE Premium
subscribers gain free access.
More information:
www.pie-mag.com/events
April 9, Tuesday
PIE Nordics Property Breakfast,
Frankfurt
PIE hosts the latest in its highly popular
series of panel discussion with senior real
estate executives. PIE Premium subscribers
gain free access.
More information:
www.pie-mag.com/events
April 17-18, Wednesday-Thursday
INREV 2013 Annual Conference, Barcelona
Europe’s property funds association will provide insights and face the key question of how the industry moves forwards. The conference will also host INREV’s 10th anniversary celebrations.
More information: www.inrev.org
April 9-10, Tuesday-Wednesday
9th Annual International Real
Estate Conference, Croatia,
Zagreb
Croatian accession to the European Union will
dominate this year’s conference, which last year
attracted over 500 participants and 80 speakers
from 15 countries.
More information: www.filipovic-advisory.com
April 17-18, Wednesday-Thursday
ICSC European Conference, StockholmThis year’s European Conference will examine how, despite current challenging times, retail remains dynamic and innovative in a world where consumer purchasing journeys have evolved.
More information: www.icsc.org/2013EU
March 22, Friday
PIE Special Focus Roundtable, London
PIE’s first Special Focus Roundtable will discuss all aspects of the asset class Student Housing. All companies active in this sector in UK and Europe are welcome to join the discussion, which will be featured in a multi-page reportage in the PIE April magazine.
More information: [email protected] or [email protected]
May 14-15, Tue-Wed
IPD/PIE Central & Eastern RE Conference, Vienna
Europe’s foremost property benchmark measurement group IPD and real estate investment magazine-portal PIE’s 3rd annual CEE Real Estate Conference is now firmly established as the property event of record for this fast-growing region. Join confirmed speakers S IMMO, Blackstone, UBS, Sorgente and others.More information: www.pie-mag.com
March 27,
Wednesday
ICSC Retail Connections,
London
Organised by the ICSC, this business event
brings together mall owners, developers and
agents who have space to lease with retailers
who are looking for new opportunities.
More information:
www.icsc.org/2013LRC