Amid a new government sweeping to power and promising a renewed focus on growth and inward investment, Shojin sat down with Clemens Schanz, a highly-respected Austrian real estate investor, for a continental perspective on Britain's property market.
With over 20 years in development, investment management, and transactions, Schranz provides an expert overview of the German market, highlighting the impact of first rising—and now stabilizing—interest rates.
Schranz predicts a cautious economic recovery in Germany, with real estate values expected to bottom out this year, noting sector-specific trends and challenges including tightened financing conditions and decreased foreign investment.
Regarding the UK, he sees a market in recovery, with strong opportunities in yield-seeking operational real estate and residential sectors, suggesting the market has largely repriced and may present a good entry point for risk-taking investors, particularly in ground-up developments with local partners.
Read the full interview below for a fresh prospective
Q: Morning Clemens, what’s your background and where are you now?
I’m currently based in Vienna, working in real estate investment, which I started about 20 years ago as a development manager. Over time, I evolved into investment management and most recently into transactions management.
My career has been with large enterprises, such as Raiffeisen, a significant financing institution in Austria and Central and Eastern Europe. I later moved into the more private equity-style real estate space. Most recently, until the end of 2022, I was with Signa Group, covering the DACH region (Germany, Austria and Switzerland), Italy, the UK, and occasionally more exotic locations.
For the past year, I've been advising family offices in Austria on their exposures, developments, and value-add strategies. Recently, I've been exploring opportunities in the UK.
Q: What impact have rising and then stabilising rates had on the German real estate market? How has the German real estate fund market been performing?
The economic and market outlook in continental Europe and Germany shows that economic growth is expected in 2024, but Germany is struggling with a slow economic recovery.
Real estate values are expected to hit a low point this year due to misaligned price mechanisms, with Germans hoping to see a convergence of buyer and seller pricing expectations this year. Investment and transaction volumes are low but slightly increasing; the labour market remains robust, allowing private consumption to indirectly support the real estate market.
On the financing landscape, residential real estate is performing strongly, though many listed companies have been struggling, reflecting the overall market sentiment. Tightening financing conditions and altered loan extension terms are making refinancing challenging.
A study by Ernst & Young indicated that the average German developer had only 5% equity in projects over the past few years, explaining the current financing situation. Loan defaults are anticipated to rise, and interest rates are expected to remain steady. Perhaps unsurprisingly, foreign investment in German and Austrian markets has decreased significantly, impacting market activity.
Q: Given your experience as a German investor managing capital in the UK, what are your thoughts on the UK market now?
The UK market is in recovery, though this varies by asset class. Investors in the UK are seeking yield in operational real estate, attracting capital to sectors like student housing, co-living, serviced residences, and Build-to-Rent (BTR).
London remains a core market, with a cautious approach to office spaces, focusing on high-end, future-proof properties with advanced technology and flexibility. The trend is towards rising demand for workspaces that offer value for tenants implementing hybrid working practices.
The residential market in the UK, as in much of Europe, is influenced by demographic changes and a significant undersupply. This creates strong tailwinds for new developments, though regulation and slow planning processes can be challenging.
From an investment perspective, the market offers strong opportunities, but careful asset selection is crucial. You need to consider location, market segment (affordable housing, high-end housing, etc.), and the target demographic. The UK market operates more on supply and demand economics, which I find appealing.
Q: Would you consider investing in the UK right now? Would you look at the credit side, equity side, or other aspects of real estate?
The UK market has largely repriced, creating potential opportunities for taking on more risk. If this holds true, I would consider investing, particularly with a strong local partner. Ground-up developments and value-add spaces could be attractive, but it's essential to meet all criteria in terms of micro location, concept and operational capability.
From a continental perspective, the UK market presents a compelling case for diversifying your real estate investment exposure and hedging your portfolio.