A performance to notice

In an environment of week growth and accommodating monetary policies, the European real estate sector has been experiencing strong growth for several years now. Since 2015 there is one market that sticks out with its outperformance – German residential real estate (graph_immo). A performance, that raises questions, but which can be explained by a very basic concept. The offer in German large cities is simply insufficient while the demand continues to intensify (also due to strong immigration). An environment which might continue for a while as cost of construction does not encourage new developments. In Berlin for example, the cost of a building (including land) is more than €2’500 per m2, while the average annual rent income is €72 per m2. This does not provide an attractive return (less than 3%). A configuration allowing companies to almost systematically increase rents for new tenants and so publish very positive results.