German residential portfolios leading the way

An upcoming webinar by real estate benchmarking and analysis expert IPD is expected to show that investment in residential portfolios is reaching volumes similar to the boom period 2004-2006 with a strong investment performance underlying the positive trend.

The presentation will show residential properties achieved a total return of 8.3% – by far the highest return of all German sectors and an outperformance of 3.1% compared to the overall index. Consequently the residential sector sustained the strong performance seen in the last 5 years leading to the question whether there are signs for an exaggeration of the market.

The components of the total return, capital growth and income return, disclose different trends. Residential properties achieved positive capital growth over the last 5 years (2.2% pa on average) ending in 3.5% in 2013. Corresponding to the upswing market yields dropped from 4.9% in 2009 to 4.7% in 2013 indicating an increase in value during the last years but in a moderate way. In the same period the income return increased successive from 4.2% in 2009 to 4.7% in 2013.

Daniel Piazolo, Vice President & Geschäftsführer in Germany, IPD commented: “Typically in a boom income returns decrease significantly as we have seen at many European markets during last decade’s market cycle. Although the income return for German residential property did not rise again in 2013 there are currently no signs of an overheating of the market by the income return side.”

The competitiveness of the German residential markets emerges in an international context. The German market reached the strongest income return in the last 2 years at levels of nearly 5%. Although there are markets with rising income returns like Sweden or the Netherlands (in this case driven by negative capital growth) other markets lag in parts strongly behind at levels below 3% pa as given for France or the UK.

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