Returns for the Brave

Returns for the Brave

Office Logistics Residential
27.04.2021 Author/s: Sven Carstensen and Anna Wolfgarten
Safe returns? Even for professionals, this has become even more challenging.
Safe returns? Even for professionals, this has become even more challenging.

Now it has been published, the entire 5% Study. In a second webinar, we presented the most important results for the hotel, logistics and niche market segments, among others, together with partners from the practice. It becomes clear: The risks are increasing in some real estate markets - but this is not (yet) reflected in the returns everywhere.

For the 5% Study 2020/21, we once again examined the potential returns (IRR)* on the German real estate markets. Experts from the field also had their say in a webinar moderated by bulwiengesa board member Sven Carstensen:

  • Klaus Beine, lawyer and notary, Partner and Head of the Real Estate Practice Group, BEITEN BURKHARDT
  • Dominik Brambring, Head of Germany, NL, Austria, PGIM Real Estate
  • Dierk Freitag, Head of Hotel and Leisure Real Estate, bulwiengesa
  • Dr. Joachim von Schorlemer, Deputy Chairman of the Executive Board, ING

You can watch the recording of the webinar here (in German language).

Hotels: No increase in returns despite slump in demand

Good investments in the hotel sector are primarily defined by a long lease with a liquid operator. This is where the wheat is currently being separated from the chaff: While smaller players with little financial backing are fighting for existence or have already had to give up, larger chains are on an expansion course. Especially hotels with large event capacities or airport hotels could be the losers of the crisis. For the investor, this means that the risk of loss of rent increases and that solvent tenants are in a very good negotiating position for contract extensions and expect rent reductions. The yield margins have also widened in line with the greatly increased risk bandwidth.

Very low initial yields of less than 4% are still being paid for top hotels. However, the risks of lease reductions or even lease defaults during the holding period of ten years assumed in the study are increasing - this puts pressure on the internal rate of return. The achievable IRRs have fallen once again compared to the previous study (as of 30 June 2019) to a level of around 3%.

However, hardly any transactions are currently taking place in the hotel sector; compared to the previous year, the volume has halved. Even with a timely return to normality, tourism in Germany will not be able to reach the 2019 level again until 2022 at the earliest.

Investors will look more intensively at the concept and operator than before and also give greater consideration to third-party use options in the purchase.

Logistics real estate: investors convinced of sustainability

The logistics segment is considered a winner in the pandemic, especially since structural changes in trade and the growing importance of e-commerce are strengthening the sector in the long term. During the Corona crisis, the systemic relevance of logistics became apparent. The demand for logistics and storage space is increasing permanently. It meets a limited supply, whereby the regional focus of logistics space developments continues to be in the established logistics regions. Investments in logistics properties are perceived as sustainably attractive and - in most logistics regions - stable: Therefore, the yield range of 3.2 to 4.4 % is quite low and has remained stable compared to the previous year.

Interesting investments for investors with good local market knowledge are corporate real estate, which according to the definition of the Initiative Unternehmensimmobilien can be divided into industrial parks, warehouse properties, production and transformation properties. Despite the Corona crisis, these are stable, not least because of their diversified and sometimes rather small-scale tenant structures. Corporate real estate continues to offer above-average returns - despite significant declines over the past six years, the interest opportunities for commercial parks remain at 5% in the base value. Business parks in particular are benefiting from the supply bottlenecks in the office sector. Rents have grown consistently in recent years. They are a management-intensive and high-yield alternative in the core sector.

For production properties, the value is even around 5.5 %. These two types of corporate real estate thus lead the yield field. The IRRs for warehouse properties have shrunk by 35% since 2015 - this reflects the increasing investor interest in urban logistics properties in particular.

Offices in the niches: Lucrative for the risk-averse

In the past year, it has become even more challenging for professional investors to achieve secure returns in most asset classes, even in traditionally frequently traded, stable asset classes such as office properties. Currently, investors are intensively looking for properties with a secure risk profile such as long leases with tenants with strong credit ratings. We therefore expect only a slight movement in prime yields in the coming years.

Discernible price reductions are more likely for opportunistic investments, i.e. properties that show deficits due to their location and property qualities. However, it is evident that the purchase price expectations of buyers and sellers still diverge here. Bargain hunters will have to wait. Those who want to achieve high returns with office properties must venture into smaller cities with a certain amount of courage to take risks. In German cities, 5% and more are still achievable.

* IRR = Internal Rate of Return. This ratio is used to estimate the profitability of potential investments. A holding period of ten years is assumed.

Note: You can download the current 5% Study free of charge from the bulwiengesa website.

Contact persons: Sven Carstensen, Member of the board at bulwiengesa, carstensen [at] and Anna Wolfgarten, Junior Consultant at bulwiengesa, wolfgarten [at]