How To: Germany for Property Investors

Federal Structure

When talking to international investors of all sorts, one point of misconception has been coming up for decades.

Over the years, different waves of international investors have discovered Germany as an attractive property investment location. Although many follow similar strategies, the approaches have varied. However, one common misconception keeps acting to their disadvantage.

Almost all international investors in German property know the top 5 investment locations and many are also aware of the slightly extended list of the top 7 investment locations:

Top 5 Property Markets in Germany

• Berlin
• Hamburg
• Dusseldorf
• Frankfurt
• Munich

Runner-Up Property Markets

• Stuttgart
• Cologne

The above list follows no particular order. When adding up the number of inhabitants, the above cities account for slightly more than 10% of the total German population. Just by comparison, London alone accounts for more than 13% of all UK inhabitants. While these figures are somewhat distorted by the different legal and geographical definitions of the city areas and boundaries, they do illustrate the clearly different structure of the Germany, compared to many other countries in Europe.

Germany’s historic evolution lead to a federally organised structure that can clearly be recognised in many aspects of modern day Germany.

Many administrative government functions are deliberately spread accross the country. For example, did you know that the highest court in Germany, the Federal Court, is based in Karlsruhe? In fact, almost all federal government agencies are not located in the capital Berlin. The aviation agency is in Braunschweig, the statistical office is in Wiesbaden and the federal employment agency is based in Nuremburg to name just a few.

In addition, Germany has 16 federal states, each with its own capital and parliament and many other related administrative functions. In investment terms, that could add at least 16 additional locations onto the menu of valid investment destinations straight away. However, have you ever heard of Magdeburg, Erfurt or Saarbruecken?

Moreso, bear in mind that accross Germany there are 39 cities with more than 200,000 inhabitants. There ist a total of 76 cities with more than 100,000 inhabitants and 182 towns and cities with more then 50,000 inhabitants.

Take Away

Well, you have more choice, less competition but is it really worth the extra effort? The answer is a clear “yes!” Without scientific evidence, experience tells us that you have a 1-2% premium when you compare investment product in the top 5-7 locations to regional cities and towns.

Experience also tells us that the regional markets tend to be a significantly less volatile in terms of occpupier demand, rental movement and vacancy. That may be good or bad, depending on your risk-return profile.

Not all of these cities and towns will be attractive investment locations and you would need to look deeper into economic and demographic trends and developments for each of those locations to determine whether it may be an attractive long term investment proposition or not.

However, depending on your investment budget and strategy, you could invest in any number of locations accross Germany that can all serve as valid and viable property investment locations.

Of course, assets volumes and uses need to fit the respective local market and you may be misguided to invest in chunky high rise office towers in a regional city. But if you are careful to match your target uses and volumes to the local markets, you may indeed be able to source very interesting deals that other international real estate investors may overlook simply because they do not venture outside the top 5 or 7 investment destinations in Germany.

You are interested to find out more about alternative investment destinations in Germany? Please arrange your free initial 30-minute chat here.