German B-cities, suburbs are offering good opportunities
With housing supply having become scarce in the largest German conurbations for both investors and tenants – and development activity not set to bridge that gap any time soon – B-cities and the suburbs are the places to invest at the moment, the panel agreed. “Investors are actually forced to look into B-cities due to the lack of supply in A-locations,” Halwer told the audience. He noted that Bavaria is a particularly strong region for this kind of investment, with 11 of the 25 most attractive B-cities identified by Catella research located in the southern German state. “Munich is simply too expensive for large parts of the working population, so a lot of people have long commutes in from the suburbs.” Commuting into Berlin is currently made quicker from the surrounding Brandenburg as the state is making substantial investments in its infrastructure, Dëus-von Homeyer said.
Kortmann noted that the country’s old and rigid city boundaries may represent a deterrent to some investors. “Instead of seeing the Rhine-Ruhr area as one of the largest metropolises in the world, investors look at Gelsenkirchen, Essen and Dortmund on a single-city level. It is often overlooked by investors due to its fragmented structure, though you may not even notice the transition driving from Dortmund to Bochum, for example.” With 5.2 million inhabitants, the Rhine-Ruhr area (Ruhrgebiet) is the largest urban conglomeration in Germany and the fifth largest in Europe. It includes cities such as Duisburg, Essen, Bochum and Dortmund. Several other large German cities, including Cologne, Düsseldorf and Bonn, are located just south of the region. Dëus-von Homeyer pointed out that city allocations depend on an investor’s individual risk-return profile. “We have a lot who are happy with staying in the largest cities with their very low returns.” Looking at the other end of the spectrum, he said that there are also investors willing to buy assets at yields of over 10% in very rural areas. “Will they make money? Probably yes, as the downside of a full loss is limited in Germany for the moment.”