German residential investors look to foreign markets for growth

German residential investors are increasingly looking abroad due to challenges in the domestic market.

Pepijn Morshuis, CEO of Trei Real Estate

Rising construction expenses, slow permitting processes, unpredictable financing conditions, strict building codes, and unclear regulations are prompting investors to seek opportunities in other countries. This trend was highlighted at a recent online conference bringing together managers from leading real estate players.
Cities like Vienna, Amsterdam, and Dublin provide regulatory clarity and opportunities for affordable housing development. Scandinavia and Ireland boast high yields and market transparency, while Japan, particularly Tokyo, is an undervalued investment opportunity due to its low housing cost burden, dependable dividend payouts, and strong long-term stability.
Pepijn Morshuis, CEO of Trei Real Estate, pointed out that lengthy development plan approvals are a major issue, with some Berlin projects awaiting clearance for over ten years. Even projects meeting building code requirements can take six to eight years from planning to completion.
Despite encouraging signs from politicians, approval processes remain slow, often due to authorities' fear of errors. Constant shifts in political leadership lead to evolving requirements, creating uncertainty and making reliable financial planning difficult for investors and developers.
Compared to countries like Poland and the USA, where similar processes can be completed in months, Germany lags significantly. Trei Real Estate is increasingly focusing on locations in the southeastern US and major Polish cities like Poznan.
Morshuis stated that the US offers clear deadlines and designated contacts, allowing for full development plan procedures within two and a half years and project completion in under five and a half years – a timeframe in which a building permit is often not even obtained in Germany.
Felix Meyen, managing director of HIH Invest Real Estate, explained that while interest in German residential real estate remains strong, the availability of suitable projects is shrinking. High demand in major cities clashes with a limited supply, while escalating costs and insufficient yields create financial risks.
In response, HIH Invest is strategically shifting focus to major Western European cities with stable demand and predictable regulations, including Vienna, Amsterdam, Copenhagen, London, and Dublin.
Meyen emphasized that investors are highly interested in stable, low-risk residential products, driven by rising housing demand, consistent rental growth, and a positive demographic outlook.
Scandinavia and Ireland offer attractive high-yield alternatives in the housing market, according to Michael Keune, managing director at Catella Investment Management. Finland, for instance, has minimal regulatory intervention, fostering high price transparency, quick market adjustments, and a highly institutionalized ownership with consistent cash flow.
Keune emphasized Finland's position as one of Europe's most liberal housing markets, translating to increased predictability, dynamism, and reduced regulatory risks – crucial elements for long-term investment success.
Ireland is experiencing a boost from Brexit, particularly in student housing. Dublin's demand for student accommodation is soaring, while supply struggles to keep pace. Catella is exploring a Dublin student housing project with a projected gross initial yield exceeding eight percent, citing the combination of high demand and predictable rental income as a uniquely appealing opportunity for institutional investors.
The panel concluded that Germany needs significant political action to revitalize residential construction and regain its appeal as an investment destination. They agreed on the necessity of fundamental reforms, including digitalization and streamlining of permit processes, alongside a review of technical standards that often inflate costs without providing proportional benefits to residents.
Specifically, increased investment in social housing construction and the empowerment of municipal developers were deemed essential. The current rent control regulations should be re-evaluated to understand their long-term effects on investment and housing supply.
Furthermore, collaborative partnerships between the public sector and private developers are vital.
The panel of speakers, which also included Gerhard Lehner, head of Germany at Savills IM, concurred that the increasing trend of institutional residential investment diversifying internationally is not temporary, but rather a logical reaction to persistent challenges within the German market. While German cities like Berlin, Hamburg, and Munich face ongoing housing shortages, European and global markets offer faster, more predictable, and economically sound project development opportunities.