Over the next few years there will be major changes across the European Union whether the UK is involved or not. At this moment in time investors seem to be discounting the U.K.’s active involvement in the European Union in the future with Germany overtaking the UK as Europe’s most active commercial property market. Despite the triggering of Article 50 expected to go through this week there are still many who believe that the UK will be an integral part of Europe albeit from the outside looking in.
Why are investors ploughing into Germany?
Statistics from Knight Frank show that in 2016 commercial property transactions in Germany totalled €59 billion. Over the last few years there has been a gradual strengthening of the German commercial property market while not necessarily at the expense of the UK. The reason being is that Germany is seen as a safe haven within Europe with a strong economy, relatively stable political environment and diverse property markets. However, if Europe continues to struggle how will the German economy counteract that?
There is also talk of Angela Merkel losing control in forthcoming elections which would not necessarily help Germany’s so-called safe haven status. So, at this moment in time it is understandable that some investors are switching from the UK to Germany but to assume that everything is stable within Germany could be stretching the point a bit.
Commercial property hotspots
The research also shows that Berlin, Frankfurt, Hamburg, Munich, Cologne, Düsseldorf and Stuttgart accounted for 55% of all commercial property transactions across Germany during 2016. It was also interesting to learn that 60% of property deals involved German buyers showing that domestic investors are extremely positive.
There are two main areas to consider, Berlin is quickly emerging as one of Europe’s most creative hubs with €5.7 billion worth of commercial property traded last year. Frankfurt, perhaps the main danger to London, is seen as Europe’s leading financial centre. Amid concerns that some of London’s more established financial companies could jump ship to mainland Europe might be reflected in the fact that 230 national and international banking institutions already operate in the city. Leasing activity is also back to levels not seen since the 2008 worldwide economic crash which is another positive sign.
The German economy and the German property market have held up extremely well in light of recent European problems. The onset of Brexit has made many investors and companies think again but it is dangerous to assume that the European challenges are over. The UK could be one of many countries to leave the EU over the next decade during a time when we will likely see significant reorganisation of the EU set up. There is also serious concern about the long-term prospects for the euro with the likes of Greece dragging the rest of Europe down and other countries not exactly prospering.
Germany has a very strong relationship with the UK and Angela Merkel is likely to do all in her power to retain that going forward. Germany’s next closest ally is France but there is political upheaval across that country and the economy is struggling to recover in what is a challenging environment. If any non-UK European commercial property market is to prosper in the short, medium and longer term it has to be Germany.