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Warburg-HIH Invest Market Report: Real Estate Markets Benefit from Time Factor at Present, and from Attractive Yield Level Long-Term

Warburg-HIH Invest Market Report: Real Estate Markets Benefit from Time Factor at Present, and from Attractive Yield Level Long-Term

  • Increased likelihood of a long trough cycle
  • Germany will benefit from sound positioning in long run
  • Impact on real estate markets subject to time lag
  • Real assets remain attractive investment class

Hamburg, 18. May 2020 – Warburg-HIH Invest Real Estate (“Warburg-HIH Invest”) assumes that real assets will remain an attractive asset class for investors with a longer-term investment horizon despite the extreme short-term setbacks the coronavirus pandemic is causing for national economies everywhere. According to a current assessment by Professor Dr. Felix Schindler, Head of Research at Warburg-HIH Invest, Germany is in a comparatively sound baseline situation, even if the level of uncertainty is high at the moment. “There is no blueprint how to cope with the ongoing crisis, and the decisive factor to gauge the scale of the ramifications is the duration of the pandemic,” said Schindler. A swift return of the national economies to the level prior to the onset of the corona pandemic seems less and less realistic. “The recovery of the national economies will take an increasingly disproportionate length of time the longer lock-down, restrictions and uncertainty drag on. Going forward, we consider an extended trough cycle more and more likely at this time,” explained the researcher.

“In the short term, we expect to see a massive drop in transaction volumes on the real estate investment markets,” said Schindler. The travel restrictions alone suggest as much. “It will only be after a certain delay that major, long-term ramifications of the coronavirus crisis will hit the real estate markets. For the time being, this widens the freedom of action in asset management,” as the economist elaborated. “Considering the persistent investment pressure—especially in the core sector—we anticipate expanding risk spreads, especially for riskier investment styles, single types of use and for specific locations or countries,” predicted Schindler. At the moment, the occupier markets show a greater level of restraint among companies that are planning to expand and the temporal postponement of new rentals, and this will cause the brisk rental dynamics of recent years to slow down noticeably. “When you look at the historically low vacancy rates and a moderate building activity, we have an excellent baseline situation on the German occupier markets compared to previous crises, and this should have a stabilising effect,” as Schindler emphasised.

The high level of uncertainty and the looming recession is already reflected in virtually all purchasing managers' indices and sentiment indicators. On top of that, the shock for the real economy has now reached the financial market and triggered turbulences. “With the first weeks of crisis behind us, faith in the measures taken by central banks and governments has increased, and we are back in calmer waters,” said Schindler. Warburg-HIH Invest expects risk premiums to go up but interest rates to stay low for a long time to come. “We are looking at a ‘lower-for-longer scenario’ and thus at a low interest rate environment that we will have to work with for an indefinite period of time,” the economist explained. “Since secure bond markets yield only insignificant returns, and since equity markets are defined by a high degree of volatility, the investor interest in safe real estate investments with stable cash flows will persist, and so the very high pressure to invest in real assets is here to stay.”

Germany shows comparatively sound parameters for coping with the coronavirus crisis. In regard to fiscal policy measures and aid packages, the London-based “Deep Knowledge Group” think tank ranks Germany first, ahead of the United States and Japan. “The budget surplus of recent years and the successful model of short-time work arrangements help the German economy tremendously in its efforts to weather the crisis,” said the economist. Generally speaking, Germany still counts among the safe haven internationally, as reflected in the fact that it ranked second in the “Safety Countries Ranking” by the Deep Knowledge Group. “The quarantine concept is proving effective, the government measures are kicking in, and the healthcare system is up to speed. The sound institutional and economic parameters will ensure that capital will keep pouring into Germany and be committed in real assets,” commented Schindler.

That being said, each of the use types in the real assets sector presents a different picture. The hospitality segment already anticipates substantial corrections, and expects them to hit near-term, whereas the retail segment requires a differentiated approach. Comparatively stable is the performance of neighbourhood centres anchored by retailers from the food and toiletries sectors. In the case of shopping centres, losses in revenues are already being felt because leases here tend to include turnover rent clauses. “In the office sector,” said Schindler, “the effects we see appear to be moderate and downstream, because there are currently no indications for a deeper, prolonged recession that would cause a massive downturn on the labour market.” Although the logistics segment is impacted by collapsing supply chains, the sector is credited with a positive long-term outlook because of accelerated online retailing, the increased warehousing of safety-relevant products by companies and government institutions and with a view to the possible creation of redundant supply chains. Ramifications are expected to be least dramatic on the housing market. Because of the extensive government aid programs, Schindler anticipates “partial collection losses at worst.” However, even the residential segment includes formats with increased exposure, such as serviced apartments and micro-living, because these are dependent on business and travel activities.

All things considered, Warburg-HIH Invest believes the structural parameters for real estate markets remain attractive even in the wake of the coronavirus crisis. “The demographic mega-trends remain intact while the low interest rate environment and the volatility of equity markets are here to stay,” said Schindler.

“There is no blueprint how to cope with the ongoing crisis, and the decisive factor to gauge the scale of the ramifications is the duration of the pandemic. The recovery of the national economies will take an increasingly disproportionate length of time the longer lock-down, restrictions and uncertainty drag on. Going forward, we consider an extended trough cycle more and more likely at this time.” “In the short term, we expect to see a massive drop in transaction volumes on the real estate investment markets.” “It will only be after a certain delay that major ramifications of the coronavirus crisis will hit the real estate markets. For the time being, this widens the freedom of action in asset management.” “Considering the persistent investment pressure—especially in the core sector—we anticipate expanding risk spread mainly for riskier investment styles, single types of use and for specific locations or countries.” “When you look at the historically low vacancy rates and a moderate building activity, we have an excellent baseline situation on the German occupier markets compared to previous crises, and this should have a stabilising effect.” “With the first weeks of crisis behind us, faith in the measures taken by central banks and governments has increased, and we are back in calmer waters. We are looking at a ‘lower-for-longer scenario’ and thus at a low interest rate environment that we will have to work with for an indefinite period of time. Since fixed-income markets yield only insignificant returns, and since equity markets are defined by a high degree of volatility, the investor interest in safe real estate investments with stable cash flows will persist, and so the very high pressure to invest in real assets is here to stay.” “The budget surplus of recent years and the successful model of short-time work arrangements help the German economy tremendously in its efforts to weather the crisis.” “The quarantine concept is proving effective, the government measures are kicking in, and the healthcare system is up to speed. The sound institutional and economic parameters will ensure that capital will keep pouring into Germany and be committed in real assets.” “In the office sector, the effects we see appear to be moderate and downstream, because there are currently no indications for a deeper, prolonged recession that would cause a massive downturn on the labour market.”

Professor Dr. Felix Schindler, Head of Research
Warburg HIH Invest



Warburg-HIH Invest Acquires Two Logistics Assets for OpenEnded Special AIF

Warburg-HIH Invest Acquires Two Logistics Assets for Open-Ended Special AIF

  • Distribution warehouses located in Saarland and Rhine-Main region
  • Investment fund “Warburg-HIH Deutschland Logistik Invest” already raised over 100 million euros in capital
  • Exclusivity secured for additional assets

Bremen/Hamburg, 7. April 2020 – Warburg-HIH Invest Real Estate (“Warburg-HIH Invest”) just acquired two distribution warehouses for its special AIF, “Warburg-HIH Deutschland Logistik Invest.” The properties are located in Saarland and in the Rhine-Main region, and represent the first logistics properties that were acquired for the open-ended special AIF. Exclusivity has already been secured for additional assets for the investment fund that are worth double-digit millions, the transactions being almost signature-ready. The fund invests in modern distribution and transshipment centres with alternative use potential, located in established sites throughout Germany. To boost the fund’s performance, it is planned to add some properties with optimisation potential. The investment fund’s equity target is c. 250 million euros, of which more than 100 million euros in investor funds have already been raised. The total investment volume of the fund is 500 million euros. Institutional players may invest in the fund by acquiring equity interests of 2.5 million euros or more.

“We have made much faster progress both with the fundraising among investors and the acquisition of properties than we had planned for 2020,” said Andreas Strey, Senior Fund Manager at Warburg-HIH Invest.

The single-tenant property in Saarland, which will already be completed in April 2020, provides about 18,100 square metres of warehouse and lettable logistics space of and over 1,300 square metres of office space. It is fully occupied on a long-term lease. The second acquisition involves a distribution warehouse under development in the Frankfurt am Main metro area. Located close to Fraport, the largest freight airport in Europe, the logistics property has about 15,000 square metres of lettable warehouse and logistics space, around 2,700 square metres of office space and about 100 car parking spots. The multi-tenant property is fully occupied, the average remaining lease term being around 13 years. The completion is scheduled for mid-2020. Both transactions represented asset deals. It was agreed not to disclose the selling prices.

“The ongoing coronavirus crisis has increased popular acceptance of e-commerce, and will boost its growth in the long term. In addition, we are expecting to see a trend toward changed supply chains, especially of system- and production-relevant goods that will roll back the off-shoring to Asia and prompt increased on-shoring in Germany, resulting in growing demand for logistics accommodation in Germany. The logistics real estate sector stands to benefit from the trend accordingly,” said Lars Bothe, Senior Transaction Manager at Warburg-HIH Invest.

On the buyer side, the legal due diligence of the Saarland transaction was conducted by Norton Rose Fulbright, the technical due diligence by SCHWAB engineers Projektmanagement. Norton Rose Fulbright was responsible for the legal due diligence for the transaction in the greater Frankfurt area while REC Partners took care of the technical due diligence. Logivest acted as estate agent in an advisory role during both transactions.

“We have made much faster progress both with the fundraising among investors and the acquisition of properties than we had planned for 2020.“

Andreas Strey, Senior Fund Manager
Warburg-HIH Invest

“The ongoing coronavirus crisis has increased popular acceptance of e-commerce, and will boost its growth in the long term. In addition, we are expecting to see a trend toward changed supply chains, especially of system- and production-relevant goods that will roll back the off-shoring to Asia and prompt increased on-shoring in Germany, resulting in growing demand for logistics accommodation in Germany. The logistics real estate sector stands to benefit from the trend accordingly.”

Lars Bothe, Senior Transaction Manager
Warburg-HIH Invest



Warburg-HIH Invest sells office property in Vienna

Warburg-HIH Invest Sells Office Property in Vienna

Vienna/Hamburg, 24. March 2020 – Warburg-HIH Invest Real Estate (“Warburg-HIH Invest”) sold an office property in Vienna in form of a share deal to a real estate fund managed by Blue Colibri Capital. The eight- storey office building was built in 2002. It provides a gross lettable area of about 13,830 square metres and 147 underground parking spots. Main tenant is the federal government of Austria with its Ministry of Finance. The weighted average lease term of the office property is roughly ten years. Acquired by Warburg-HIH Invest in December 2015, the property was now sold via a limited tender process.

“The asset strategy succeeded in securing long-term rental upside potential. The above-average length of the lease terms reflects the demand for efficient office accommodation in this sub-market,” said Jana Wetzel, Real Estate Manager at Warburg-HIH Invest Austria.

“At the End of the past year, we made the strategic decision to sell because we saw an opportunity to achieve significant appreciation compared to our total investment costs at the time of the acquisition in late 2015,” added Matthias Brodesser, Head of Transaction Management International at Warburg-HIH Invest. “Notwithstanding this disposal, we intend to add further commercial real estate properties to our existing portfolio in Austria in the future.”

The address Brehmstrasse 14 is a conveniently accessed location in the 11th district in south-east Vienna, near the A23 motorway, and around two kilometres from Vienna’s central railway station.

Warburg-HIH Invest was legally advised by the law firms of Dorda Rechtsanwälte (Austria) and Hogan Lovells (Germany) and received tax advice from TPA in Vienna. EHL Investment Consulting, part of the EHL Group, brokered the purchase of the property to Blue Colibri Capital.

“The asset strategy succeeded in securing long-term rental upside potential. The above-average length of the lease terms reflects the demand for efficient office accommodation in this sub-market.”

Jana Wetzel, Real Estate Manager
Warburg-HIH Invest Austria

“At the End of the past year, we made the strategic decision to sell because we saw an opportunity to achieve significant appreciation compared to our total investment costs at the time of the acquisition in late 2015. Notwithstanding this disposal, we intend to add further commercial real estate properties to our existing portfolio in Austria in the future.”

Matthias Brodesser, Head of Transaction Management International
Warburg-HIH Invest