About the German Banana.
Recently I have been asked to give a short insight and overview on the German Property Market… Here is an excerpt.
Where people live... (c) ideen-park 2011.
1. What are the main characteristics of the German property market and German property investors and how would these contrast with other European property markets such as Ireland?
First, there is no “German Property Market”. The different local markets show tremendous differences in stability, cash flows, upside potential, etc. So – we have to split the answer… Do you know the German Banana? I think this is important to understand the different markets.
Now, what you see is what we call the “banana”. (click to enlarge).
We start in the Hamburg area, switch over to the bow from Hannover, the Ruhrgebiet to Cologne / Dusseldorf, move down to the Frankfurt area and then to Mannheim / Heidelberg. Going to the Stuttgart area and ending in Munich. You will se two additional spots: Berlin in the northeast and Nurnberg in the southeast.
Two spots in the east are to mention: Leipzig and Dresden.
Where people work... (c) ideen-park 2011.
Easy to see: the jobs are where the people live??? No, it is the opposite around. In fact, the jobs determine the places of residence.
(click to enlarge)
Unemployment... (c) ideen-park 2011.
So this might be even more important. (dark = unemployment)
What you see is the dramatic slope from north to south and east to west. And you will also see the prosperous south… (click to enlarge)
Let´s go into the details…
Residential: extremely regulated by law, extremely stable in general BUT: there is a general slope from north (except Hamburg) to south and from east to west. Very nice potential in the big cities[1] (inner city lots) except Munich (the market is already near to its top). We do see a significantly rise in rents right now in nearly all segments in these cities. But extremely in A, AA and AAA segments. (although the market is regulated by law) The trend is back to town, sell your house in the countryside, have a nice flat with any convenience. The German residential markets in these cities are definitely among the most stable real estate markets worldwide.
Office: Same slopes as above; but hot spots are Hamburg, Cologne, Dusseldorf, Munich and Frankfurt. Not so much potential here. The second row cities are much more interesting like Stuttgart[2]. Generally spoken: the office markets were relatively down in 2007, 2008, 2009. So we have seen some very nice movements into the main city centers. E.g. KMPG has moved from outskirts to downtown Stuttgart (because the downtown areas were relatively cheap). And some other bigger movements are announced. So the trend is back to downtown. BUT: less space per capita and much more flexibility in the use of the space.
Retail: There are some really big developments like Stuttgart 21, Hamburg Hafencity etc. What will work? High class retail in the downtown areas in the big cites. Yes – but no one would sell. Retail will work in the “banana areas”. But we have to think about the purchasing power on the one hand and about the market saturation on the other hand.
(… five more pages follow …)
[1] 500,000 inhabitants and more.
[2] Stuttgart area has about 2.5 million inhabitants and is no. 3 in Germany. You can call this a hidden champion because of its poor marketing… desired or undesired. Stuttgart has the highest living quality among the big ten together with Munich – but the costs of living etc. are a bit lower.
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