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Commercial Real Estate Financing in Germany Emerging From the Crisis

September 27, 2010

FRANKFURT, September 27, 2010 /PRNewswire-FirstCall/ — In advance of the
ExpoReal in Munich, Helaba Landesbank Hessen-Thueringen has presented its
study “Frankfurt office market: Quality counts”. In focus are the prospects
for the office market in Frankfurt and the Rhine-Main economic region. Johann
Berger
, Vice Chairman of the Board of Managing Directors and responsible for
real estate, also took the opportunity to comment on the outlook for
commercial real estate financing in Germany. Whilst he sees no danger of an
imminent credit crunch, at the same time risks for the supply of loans cannot
be ruled out:

“Against the backdrop of a securitization and syndication market still
unable to function properly, as well as higher equity capital requirements
and increasing refinancing volumes, together with the withdrawal of foreign
real estate financiers from the German market and only a limited number of
German banks capable and willing to take on a limited part in a financing
themselves, there are still risks for the future supply of lending in
commercial real estate financing in Germany.”

Whether the players in the property markets have learned from the crisis
can only be answered, Berger is convinced, in the further course of the
market’s recovery. What is striking is that market participants concentrate
almost exclusively on first-class properties in prime sites. “The run on core
real estate has led once again to declines in initial yields,” Berger
observed.

Withdrawal from international markets is, for Berger, not a sensible
response to the crisis. The relative stability of the German market during
the crisis corresponds, he believes, to lower expectations of higher property
values in the recovery phase now starting. Berger: “Domestic market-players
who, in reaction to the crisis, concentrate exclusively on the German market,
could be missing out on better chances outside our national borders.”

Office market Frankfurt – Quality counts!

The Frankfurt office market proved to be relatively stable during the
financial crisis. This was chiefly because employment did not fall
significantly. In the mid-term, however, only a slight increase in jobs is
expected in Frankfurt as the economic growth trend is generally flatter and
financial service companies continue to reduce their personnel. “This leads
one to expect a rise of at least 2 percent in office employment for the next
five years,” says Dr. Gertrud R. Traud, Chief Economist and Head of Research
at Helaba.

Frankfurt market is creating a stable base

The Helaba economists are assuming that top office rents in Frankfurt
will have found a stable base by the end of the year. In the current year,
weak demand for office space and higher building completion rates are still a
drag on the Frankfurt office market. In 201l, occupancy turnover in the
letting market should pick up further. Given a markedly lower building
completion rate, top rents could rise further but a depletion of the high
vacancy rates is not yet in sight.

A low new building activity and continuing caution on the part of
investors and financiers are preconditions for limiting a rise in the already
high vacancy base of more than 14 percent. In view of the high proportion of
older space in vacant office premises, refurbishment and modernization
activities, in contrast to new construction work, are likely to take on more
importance.

Moderate outlook for the Frankfurt office market

For the next few years, the authors of the study are reckoning with only
a moderate demand for office space in Frankfurt. On the basis of their
employment forecast, they expect a demand of 200,000 m2 in office space.
“This corresponds,” according to Traud, “to just about two large office
towers.” Bearing in mind the sustained trend towards greater space
efficiency, even this cautious forecast could prove to be too optimistic.

Quality of the location decisive – peripheral areas remain problematic

The high demands for quality in the Frankfurt market will also in future
be reflected in a differentiated development of the office locations. The
prospects of central inner-city sites are favourable, whereas the often older
office space in neighbouring areas is sharply affected by high vacancy rates.
As an office location, Frankfurt Airport is likely to gain in importance. In
the view of the study’s authors, its position will be strengthened by current
expansion of its capacities and leads to the expectation that employment will
increase in Germany’s largest centre of commercial and financial operations.

Many simultaneous city development areas

In Frankfurt, a number of city development projects are being planned
that will call for a relatively large proportion of office premises. Each of
these projects offers the city important long-term development opportunities.
“Given that demand for office space is likely to be restrained in the next
few years, it is important to pay greater attention to quality rather than
quantity,” emphasize the authors of the study.

Residential construction must not be neglected

Thanks to the clear rise in residential construction activity in recent
years (e.g. in the new city district Riedberg) the city of Frankfurt could
also share in the population growth of the Rhine-Main region. The
mobilization of sufficient space for housing construction is of enormous
importance for the city’s development. As, in the next few years, the demand
for housing will exceed the demand for office space, project developments
should be flexibly planned and adjusted with regard to their possibilities
for use.

    Press and Communication

    MAIN TOWER - Neue Mainzer Strasse 52-58
    60311 Frankfurt am Main - http://www.helaba.de
    Tel.: +49(0)69-9132-2192

    Wolfgang Kuss
    E-Mail: wolfgang.kuss@helaba.de

    Ursula-Brita Krueck
    E-Mail: ursula-brita.krueck@helaba.de

SOURCE HELABA Landesbank Hessen-Thueringen


Source: newswire



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