GERMANY - Investor appetite for German core property amounts to 鈥渁 fetish鈥� with 鈥渁 touch of fundamentalism to it鈥�, according to IVG Immobilien managing director Thomas Beyerle.

Describing the tendency to focus exclusively on core as symptomatic of a lingering sense of crisis, he said it mirrored 鈥渁 collective lack of sensitivity of the sort required for a sound risk assessment鈥�.

Although macro factors have up to now supported the perception of Germany as a relatively stable market, he said in a note that positive take-up trends and rental growth could be a thing of the past.

Beyerle told IP Real Estate that domestic investors assumed their international counterparts would pay any price for German assets.

鈥淭hat鈥檚 realistic - sometimes - but there is a lack of willingness to buy on the other side of the street,鈥� he said.

鈥淭here is still a lack of feeling for risk in real estate. Investors are only interested in either core or supercore.鈥� 

Although international investors might be expected to have a stronger appetite for non-core assets, he said, they were currently chasing the same prime assets that make up only 1-2% of the overall market.

Overseas investors currently make up 33% of transaction volumes in the German market.

IVG鈥檚 Market Tracker, published last week, showed that seven major cities accounted for more than 53% of market activity worth 鈧�23.5bn last year.

Prime rents rose on average 2.6% last year.

鈥淚t isn鈥檛 clear how they plan to make any money,鈥� said Beyerle. 鈥淭here鈥檚 a lot of money coming into the market - but it鈥檚 only interested in prime locations. Everything else is secondary.

鈥淵ou鈥檇 get very little for an asset a hundred metres outside the banking district in Frankfurt. Prime prices are rocketing, but there is virtually no activity outside prime.鈥�

Beyerle forecast that prime yields would drop from their current level - hovering around 4.9-5% - to nearer 4%, amid a continuing yield spread between prime and secondary.

鈥淭he ocean of money from international investors will increase pressure over the next 24 months,鈥� he said.

鈥淭o create value, investors will need to look at other locations and at repositioning assets.

鈥淏ut for the time being, core is a super-fetishistic segment, and on the other side of the street, you have a great nothing.鈥�

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