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Affordable housing central to German 2017 outlook

Germany’s residential markets will take the spotlight next year, with affordable housing concerns expected to be one of the key issues of the 2017 federal election.

Analysts said the major political parties are expected to address affordable housing worries during next year's federal election after housing stock shortages led to higher property prices, particularly in metropolitan cities.

However, the poll will have little impact on the commercial sectors, according to Jan Linsin, CBRE head of research for Germany. He said in an interview that the commercial outlook remains positive for Germany because it is seen as a "safe haven" for investors.

"Everyone is keen to invest in safe and secure income streams at the top end of the market, like prime, core and core-plus, but there is limited availability in the market," he said. "It’s driving capital values up and yields down."

Foreign investment will continue to play a critical role in Germany, with high levels of interest from North American and Asian investors, particularly South Korean investors. Linsin said eight out of 10 large transactions this year were made by foreign investors.

In the office space, Linsin said there has been healthy take-up and dismissed concerns of a bubble, citing strong occupier demand across the major cities. The retail sector is expected to see a greater focus on the top retail markets and high street assets, while e-commerce should continue to drive demand in industrial assets, especially in logistics, Linsin said.

German REITs, which compete against open-ended, private equity and pension funds, are expected to look for further growth through mergers or acquisitions of smaller portfolios when the opportunities present themselves, according to a Savills research paper.

Catella Property Valuation GmbH managing director Thomas Beyerle said in an interview that he expects to see more activity between Deutsche Wohnen AG and Vonovia SE after Deutsche Wohnen shareholders sunk Vonovia's takeover plans in February. Beyerle said there are only a limited number of major REIT players left, so the next stage of activity will likely focus on smaller companies with portfolios of 1,000 to 5,000 units.