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Press article
from DPN
12
.
10
.
2020

"Investments in core locations remain attractive"

Which areas of the property market have come under the most pressure in the Corona crisis? Which sectors have benefited?

Which areas of the property market have come under the most pressure in the Corona crisis? Which sectors have benefited?

Due to the corona crisis, the "residential" sector has again become the most sought-after asset class among real estate investors due to its resistance to the crisis. The logistics sector has also benefited to a particular extent due to the increased demand for e-commerce and the resulting increased need for warehouse and logistics space.

The situation is somewhat more differentiated for hotel properties: Holiday hotels have come through the crisis comparatively well and have even experienced catch-up effects in Germany due to an increased number of domestic holidays. City and business hotels, on the other hand, are currently having to struggle hard with the effects of the Corona pandemic. However, we expect a gradual recovery of the entire sector.

Many companies have recognised the advantages of the home office and want to stay with it (at least in part) even after the crisis. What impact does the trend towards the home office have on investments in office property?

In general, office properties in very good locations with flexible space are still in demand. Here, Corona has not had a negative impact on rents so far. In the letting market, we see that many companies continue to be interested in representative premises with good transport connections for their employees. This also has a corresponding effect on the investment market.

However, B-locations and older existing properties are coming under increasing pressure: here, projects and existing properties in particular are experiencing problems. In recent years, these have been purchased at very high cost prices with the prospect of steadily rising rents and falling returns. The trend towards more home office space may also play a role here. However, it is not yet possible to make a final assessment of how working from home will develop in the medium to long term. For this reason, many prospective tenants are currently hesitant about renting new, large spaces. As soon as there is certainty regarding the home office strategy, we expect a regulated rental market again.

In the past, real estate investments were considered a safe haven. Has the Corona crisis confirmed this assumption?

Real estate investments remain attractive in principle. We are also observing that the need for financing and the appetite for outside capital, especially from alternative investors, continues unabated. Although risk premiums are currently rising due to the uncertain corona situation, which may depress returns for investors a little. But there is a general indication that real estate remains a safe investment for institutional investors.

Many leases have long-term terms, which is why experience shows that a market correction will take place after the fact and slowly. Due to the effects of the corona pandemic, central banks have lowered interest rates again, which makes real estate investments more attractive than other asset classes due to the leverage effect under otherwise equal conditions.

To what extent were the measures taken by central banks and the crisis policies of governments able to support the real estate markets?

The real estate markets have been very strongly supported by the capital sponges of the central banks in the past six months and falling interest rates, as this has resulted in low opportunity returns and confirmed investor interest in real estate. In addition, measures such as rent deferrals in the office sector had and still have a stabilising effect.

These measures are also conceivable in view of a second wave. One only has to look to the USA, where the Fed is constantly putting together new packages and flooding the market with capital. But it is also a fact that such instruments are only possible for a limited period of time. At some point the market will have to support itself again.

What are your expectations for the coming months?

Investments in core locations for residential, office and logistics have shown their resilience in times of crisis and remain attractive. As described above, it is the properties that were bought at very high cost prices or low yields that are currently coming under increasing pressure.

We also expect that banks as real estate financiers will continue to act cautiously in the coming months, as many business loans could come under pressure after the expiry of insolvency protection and aid funds and put the loan book to a serious test. This will then offer attractive opportunities for alternative financiers like us to further establish themselves in the market.

Mr Koenen, thank you for the interview!

Source:
DPN-Online of 6 October 2020, by Erika Neufeld

Link to the original article: https://www.dpn-online.com/immobilien/immobilien-investments-in-core-lagen-bleiben-attraktiv-93706/

© All rights reserved. F.A.Z. BUSINESS MEDIA GmbH

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