Expo Real 2024: The mood at Europe's largest real estate trade fair has deteriorated significantly

Munich. When Expo Real opens its doors in Munich this Monday, around 42,000 trade visitors and over 1,700 exhibitors from 70 countries are expected - experts from the real estate, investment and infrastructure industries. But the mood at Europe's largest real estate trade fair has deteriorated significantly compared to the previous year. This is suggested by a survey conducted by Messe München among over 400 exhibitors.

Only 23 percent of those surveyed are optimistic about the future. There were almost twice as many last year. 95 percent of international real estate experts cited the economic and political situation in their home countries as dampening their mood. 93 percent justified their rather pessimistic assessment of the situation due to the increased loan interest rates.

And yet – not everything is bleak. In Handelsblatt's discussions with industry representatives, some market players even talk about “entry-level scenarios”. Which markets does this mean? And which investors dare to seize their opportunity on the German market? The Handelsblatt shows how differentiated the situation actually is.

Ulrich Röller is managing director of ABG Real Estate, a large developer and manager of commercial real estate. “The market continues to lack growth impulses, and at the same time the geopolitical risks are increasing,” is how he assesses the current situation. Carsten Fischer, head of the project developer Values ​​Real Estate, sees it very similarly: “A year ago the mood was good and hopeful, but since the recent interest rate increases there has been a bit of a loss of steam.”

According to Fischer's assessment, the war in the Middle East and the oil shortage in the industry are "already priced in" on the market - but not the situation in Germany. “The capital market assumes,” he says, “that Germany could lose its top credit rating.” Then bond interest rates would probably continue to rise, real estate values ​​would come under pressure and loan interest rates would likely rise.

Christof Winkelmann, CEO of Aareal Bank, which specializes in real estate loans, also does not rule out further interest rate increases by the European Central Bank. Nevertheless, he would like to remind you that interest rates are still moderate in long-term comparison.

“Institutional investors are currently focusing primarily on Munich, Hamburg and Frankfurt,” says Fischer. Stable rents are possible in top locations there. This is no longer the case in the remaining German cities.

Institutional investors, who have previously made up the majority of the market, are acting increasingly cautiously. They leave part of the market to family offices, among others, as Robert Stolfo from the real estate division of the fund house Invesco explains.

The asset managers of rich families are generally not dependent on loans and are usually well connected locally. However, these companies primarily purchase smaller units. For many family offices, 50 million euros is the upper limit for their investments.

According to real estate expert Fischer, it is currently particularly difficult to build new buildings. Because without the prospect of stable or rising property values, banks remain cautious and are reluctant to grant loans.

However, exceptions to this rule are possible. “If you sign long-term rental agreements with very solvent tenants and can prove that you are building for a reasonable price, you will continue to get a loan,” says Fischer.

According to real estate professionals, increased credit costs are causing selling pressure on the market. Felix von Saucken, Germany head of the British real estate consultant Colliers, describes who can take advantage of this opportunity: “If I as an investor have sufficient capital, now is the right time to buy.”

International investment companies that met this criterion would like to invest in Germany. However, the truth is, says von Saucken, that the returns were lower than in other countries. Nevertheless, Germany ranks fourth in the ranking of countries in which cross-border investments were made on the real estate market in the past twelve months. The top three are occupied by the USA, Great Britain and Japan.

Bank board member Winkelmann also confirms the upward trend. In Germany, more international money is being invested by buyers who are characterized by three characteristics: They are long-term oriented, experienced and need little outside capital. “We are primarily looking for high-quality hotels, apartments, data centers and well-located, energy-efficient offices,” is how he describes the international wish list.

What also attracts foreign investors are the lower prices here. This can be seen, for example, in retail properties: so-called “high streets”, properties in large shopping streets, are being sold for prices that are at the same level as in 2015. Iris Schöberl, head of Germany at the Columbia Threadneedle fund house and president of the umbrella association of the German real estate industry ZIA, says: “From an investor’s perspective, this is an entry-level scenario.”

The local housing market could also develop in an exciting way for investors. “Building type E would be an important step towards more new construction, but unfortunately this project is stuck in the Ministry of Construction again,” says Benjamin Papo, managing director of real estate financier Hüttig & Rompf.

With the new “building type E”, in which the letter E stands for “simple”, apartments are to be built at a cost of around 3,500 euros per square meter of living space. The usual amount so far is 5,000 euros and more. “However, institutional investors only buy such properties if they are legally compliant and they do not have to explain every time there is a change of tenant that the ceiling is 15 centimeters thick instead of the previous 18 to 21 centimeters,” explains Schöberl.

As long as cheaper construction is not possible, there is a problem for property developers: the construction costs are higher than what can subsequently be earned in rental income. On average, 21 euros per square meter of living space would have to be achieved to cover the costs. However, average rents in Germany are currently between twelve and 20 euros. “Anything above that leads to increased fluctuation, even in expensive housing markets like in Munich, which means higher costs for the owners,” says Iris Schöberl.

“Capital would basically be available for investments,” says ABG boss Höller. He sees the federal government and the municipalities as having a role. "Housing construction turbo and the amendment to the BauGB are starting in the right places. However, whether this will actually lead to an acceleration will be decided on site," says the project developer.