Real estate investors in Germany are mainly targeting Asia and North America in a “revitalisation” of the market, data shows.
While investors intend to maintain their overall real estate allocation levels, they are looking to adjust both geographical exposure and property types.
Investments in Germany remain in focus, but Asia and North America are gaining importance, along with residential and logistics real estate, found research publish by Universal Investment.
The firm said falling interest rates are the “main driver behind the revitalisation of transaction markets”.
The Asia-Pacific region has now become “a top priority”.
Analysis is based on responses from German pension funds, insurance companies, banks, and foundations, managing assets worth around €62 billion.
On average, 69% of the respondents’ real estate is in Germany, 20% in other European countries, and 9% in North America.
However, current allocations are not expected to remain static. For those holding properties in the Asia-Pacific region, these account for around 2% of their total real estate investments. As in previous years, emerging markets play almost no role for the survey participants, the research found.
Comparing the current figures with the projected allocations for 2024 that were recorded in last year’s survey, German real estate exposure was expected to fall to 57%, but this goal was “far from achieved”. Allocations in Europe, excluding Germany, fared better, with 20% achieved versus a forecast of 26%.
Meanwhile, Asia-Pacific allocations fell well short of the target of 8% for this year, achieving just over 2%. Allocations in North America, however, hit their target of 9% for this year.
But there are significant shifts anticipated for new investments over the next 12 months. While the share of German real estate is expected to decrease to around 50%, the survey participants plan to increase their allocations in all other markets, in some cases “drastically”.
The Asia-Pacific region has now become “a top priority”. Future allocations in the region are expected to nearly quadruple to over 8%, while North American (16%) and other European (21%) allocations are also expected to rise sharply.
“In the current market phase, real estate is and will remain an indispensable component of institutional portfolios. Despite changes in the interest rate environment, most investors plan to keep their current real estate allocation of around 25%,” said Markus Kuntz, group head of sales at Universal Investment. “However, this does not mean that they are not considering or making new allocations. The Asia-Pacific region, in particular, offers significant potential and many investment opportunities.”
He said that interest in residential real estate continues to grow, too. Due to rising rents and their stability, residential real estate provides investors with secure, long-term returns.
Offices dominate
In terms of sectoral allocation, offices remain the most dominant, with an average share of 39%, though this is slightly down from 40% last year. In contrast, residential properties have increased to an average of 24% (up from 16% the previous year), while logistics remained unchanged at 13%.
The same trend is expected for new investments over the next 12 months, with the share of residential (30%) and logistics (19%) set to increase, bringing residential properties almost on par with offices (34%).
According to the survey, hotels are also becoming more important (around 5%).
Many of the participating institutional investors are increasingly focusing on residential properties, particularly traditional apartment buildings in full ownership and student flats. In contrast, the survey participants have little to no interest in traditional apartment buildings in partial ownership, co-living spaces, or social housing.
Following the first interest rate cuts, 56% of participants are confident that the transaction markets will see a revival in 2025. Many see further interest rate reductions, which bring buyers and sellers closer together, as the main factor driving this resurgence (50%), far ahead of distressed sales due to insolvencies and non-performing loans (19%).
Institutional investors generally expect a 4% annual cash flow yield for new investments, a slight decrease from 4.1% last year.
The survey also found that half of the institutional investors were considering reducing their real estate allocation plan to reinvest in alternative investments, such as infrastructure or private equity.
Co-ownership gains in popularity
Jochen Meyers, Group Head of Relationship Management at Universal Investment, observed how the choice of vehicles for investing in real estate was changing.
“The real estate market is showing signs of stabilisation, driven by the long-term investment horizon of German institutional investors and the potential for increased transactions due to falling interest rates.
“While traditional investment vehicles, such as German open-ended real estate AIFs under the trust model, remain popular, we are also seeing growing interest in co-ownership funds, where investors can contribute their direct real estate holdings to an open-ended real estate AIF while retaining ownership and possibly without incurring real estate transfer tax,” he said.
