Press Article

Locations outside the Top 7

Analyses of Germany’s real estate market from an international perspective are often misguided, finds Nikolai Dëus-von Homeyer, Managing Director of NAS Invest. Despite the high prices quoted in some of the “Big Seven” cities, foreign investors continue to focus on these hubs. But unlike countries with a centralised set-up, such as France or the United Kingdom, the unique polycentric economic structure of Germany creates enormous opportunities even and especially outside the major cities.


Nikolai Dëus-von Homeyer is a Managing Partner of NAS Invest and in charge of strategy, product development and financing. NAS Invest is a real estate investor and asset manager based in Berlin and Frankfurt am Main. The property company has more than 350 million euros in real assets across Germany under management.

On the one hand, surveys point to overheating property prices, while on the other hand, Germany presents impressively positive parameters. How do you read the German real estate market at the moment?

Dëus-von Homeyer: The parameters of Germany paint a rather robust picture. The “Agenda 2010” federal policy shift of the zero years initiated a steady growth that has persisted for the past 15 years now – with even the financial crisis of 2008 barely leaving a dent. However, during this time, real wages rose but minimally or not at all, and political calls to eliminate fiscal drag are getting more vociferous. Austerity at any cost will therefore prove politically unacceptable in the long run, and employees are likely to start seeing bigger paychecks again. Such a development would also benefit the real estate market. So I am not aware of any reason why we should be worrying about a nationwide, structural overheating of the market in the current business cycle.

There are recent surveys that beg to differ.

Dëus-von Homeyer: That’s correct, the latest example being a survey by empirica that talks about a bubble risk for residential real estate. But the idea is nothing short of controversial among experts. Other surveys draw different conclusions. Not least, Deutsche Bundesbank painted a rather undramatic picture in its latest analysis. There is price growth, to be sure, but it reflects a real demand for more housing. And there are prestigious properties in certain locations, like next to the Brandenburg Gate in Berlin, whose prices are no doubt inflated. It is also well known that parts of the middle class are forced to move out of inner-city. This may be unfortunate, but for the real estate market it is neither a cause for alarm nor the sign of a price bubble. We advise even our own co-investors, by the way, to look beyond the “Big Seven” cities, because there is every reason to expect tidy distribution yields and, depending on the location and the property type, capital appreciation potential from such investments.

Why do foreign market players seem unaware of the advantages of a geographically more expansive approach?

Dëus-von Homeyer: The point of view adopted by a given observer depends a lot on his or her national background – many observers are barely familiar with the structure of the German real estate market. It never fails to amaze me how few of the business people I am in touch with, including many from Switzerland, know little or nothing about the decentralised nature of the German real estate market. Predictably, investors from the United Kingdom, China or Israel are even less likely to know about it, simply because they are farther away.

How do you intend to make these investment opportunities more accessible now, of all times?

Dëus-von Homeyer: The decentralised regions of Germany are home to an economic density and quality that is quite unique in the world. Rather than being driven by the major companies with their ubiquitous media presence, Germany thrives on this grid of mid-market companies. Germany is home to 70% of the so-called “hidden champions” – meaning enterprises that count among the top 3 of their respective market segment. They are often familiar only to industry insiders. You also need to bear in mind that small and medium sized companies account for more than 80% of all jobs in Germany. Accordingly, you will find that many regions in Germany have a robust infrastructure, a high quality of living, and are prosperous as often as not, and that these same regions have been virtually ignored by foreign real estate investors so far. This is what we are about to change.

What types of property do you buy, and where?

Dëus-von Homeyer: We recently picked up an asset in Dortmund-Ost that matches our “BR-NAS German Mittelstand Properties” strategy. This location has only emerged in recent years as a dynamically growing IT site. In addition to IBM, the units in this building of about 8,000 square metres are occupied by outperforming German mid-market companies from the IT sector. One of them is Adesso, a company of 1,800 employees overall that provides IT and software development in the United States and in Austria. The distribution yield of this office scheme is close to 8%. Another example is a property in Wiesbaden whose deed we had just notarised. Here, you have a broad tenant mix of high-net-worth companies, including a major service provider from the automotive industry as anchor tenant. All things considered, we focus on dynamically and structurally robust locations. What matters to us is to have a tenant mix of German mid-market companies in order to minimise cluster risks in each property and across the portfolio as a whole.

Together with BlueRock, you set up a joint venture in Luxembourg. What motivated you to take a team approach for your investment project?

Dëus-von Homeyer: We are well acquainted with our colleagues at BlueRock through a long-term partnership. A few years ago, for instance, we jointly acquired several hundred apartments in Berlin. Blue Rock handled the management of the respective fund structures through pools of segregated assets. At the time, we also committed ourselves as co-investors, and took care of the portfolio management. So we have maintained a historically grown, trust-based collaboration.

We set up the joint venture mainly for two reasons: On the one hand, we are using BR-NAS to launch an investment pipeline for which we project an excellent medium- to long-term outlook. On the other hand, this segment gives us the growth upside we need in order to be able to offer our co-investors – and new co-investors as well – attractive investment opportunities.