New housing construction in an era of low interest rates and social urban development

It is our pleasure to present you with the second Develop-and-Hold Study, which we have prepared in cooperation with bulwiengesa. What became apparent in the framework of the first analysis in 2019 has again been confirmed: develop-and-hold, developments for one’s own portfolio therefore, is very clearly on the increase. At the same time the classical project development segment – with a sale following completion or in the planning phase as a forward deal – is declining in importance in the Top 7 cities.

Living space totalling 5.4 million square metres is being created in the analysed cities through to 2024 in the framework of current develop-and-hold projects. This corresponds to 1.1 million square metres per year. The theoretical market value of all the projects across the seven A-cities, taking into account the residential location as well as the forecasts for rents and prices, has increased by seven per cent to 34.8 billion euros compared to the study year 2019.

There are various reasons for these developments. One is undoubtedly the general environment in the residential real estate sector: in larger German cities there is still immense surplus demand for apartments, which cannot be met by a long way with current levels of construction activity. A fundamental postponement of project developments has not been observed even during the coronavirus crisis. In addition, in times of volatile capital markets such as the situation we are seeing at present in the coronavirus pandemic, residential real estate in German A-cities is being sought more than ever before as a stable and long-term investment by security-oriented institutional investors such as pension funds and insurers. The yield compression with existing properties and the much greater potential for high yields with develop-and-hold projects have given this market segment an additional boost. Thus it comes as no surprise that virtually all the A-cities have a stable or even expanding planning pipeline for develop-and-hold residential projects. It is important to continually assess the residential real estate market so as to identify investment opportunities and draw conclusions on promising trends. Develop-and-hold is very clearly such a trend.

Lahcen Knapp
CEO Empira Gruppe