Ongoing Catch-Up Potential for German Real Estate Returns

Abstract

Germany has attracted substantial real estate investments from abroad within the last years. Furthermore, German investors have also invested again a higher percentage of their capital earmarked for real estate at home. Therefore it has to be examined whether the German real estate returns have justified the investments. The answer is twofold: Yes and No. Yes, investments in German property have earned higher returns compared to other countries in some years. No, looking at the average return for almost two decades, the German market has not turned out to be a good investment. Compared to returns in other markets, German returns have been low. Yet they have proven to be less volatile in comparison to other markets. Consequently, one can argue that there is less risk involved at an investment within Germany—relative to other real estate markets. However, the investor has to consider that the German market is very diverse across sectors and across regions. To judge and benefit from regional developments and opportunities, investors are well advised to research the local markets rigorously. Overall, there are good arguments for the view of still highly attractive German real estate markets—compared to other asset classes and compared to other countries.