Investment Focus – The Rhine-Ruhr Area of Germany

Whilst ProVenture have operated to a great extent in the former East of Germany for our first 5 years of operation, we continually seek new markets in which to operate across the country. The economy across the country is continually performing well despite the headwinds of the current Eurozone crisis [I sit her now in Feb 2012] and the economy is set fair for a positive decade you would say. Certainly after it sat in the doldrums for much of the 90s and early century whilst re-unification weighed down and productivity was improved. Our journeys in the West have so far taken us to the port of Bremerhaven, a yield market which we opened up for clients in 2011. Here, we are achieving 8-12% yields, backed with 80% finance and a strong tenant sector. Perfect conditions you might say. Whilst the Bremerhaven market is fairly small, we seek similar conditions across the state of North Rhine Westphalia {NRW], and set out our case for investment in this short paper.

The state of NRW is home to one of the biggest industrialised areas in the world, the Rhine-Ruhr area or Ruhrgebeit in German. The area is mapped below, with familiar cities such as Cologne and Dusseldorf.

One in 3 residents in the European union live with 500km of this region, this is the heart and life blood to the EU.

In the table below, the population in this area is given, with the major cities broken down. Some 10 million citizens makes for a huge market, which is still dominated by tenants in the residential housing sector, albeit to a lesser extent than the cities in the former east.

Broken down further, here we see a table of the independent cities by population, and density which is uniformly high across the region.

Background

Historically, most of the Ruhr area was for the most part characterized by heavy industry since the age of industrialisation in the late 19th and early 20th century. Since the Middle Ages, Cologne, Dortmund and other cities were important regional trading cities, but during the 19th century the city of Düsseldorf grew to become the administrative center of the region and since 1945 its political capital.

Today, the Rhine-Ruhr metropolitan region accounts for roughly 15% of the GDP of the German economy, which would place it as the 3rd largest GRP of metropolitan area in the European Union and the 16th largest GDP in the world. Despite this size, the Rhine-Ruhr region often lacks international competitiveness from the lack of a unified presentation, in which cities and urban areas within it, often pursue a separate investment policy against each other.

From within, Düsseldorf and Cologne are by far the largest economic centres, with specialisation in financial/high tech and insurance/multi media services respectively. Other major economic centers are Bonn, Dortmund and Essen. The region is home to twelve Fortune Global 500 companies, among them E.ON AG, Düsseldorf, Deutsche Post AG, Bonn, Metro AG, Düsseldorf, Deutsche Telekom AG, Bonn, ThyssenKrupp AG, Essen/Duisburg, RWE AG, Essen, Bayer AG, Leverkusen,Franz Haniel & Cie. GmbH, Duisburg, Evonik Industries, Essen, Arcandor AG, Essen, Hochtief AG, Essen and the Henkel Group, Düsseldorf.

From west to east, the region includes the cities of Duisburg, Oberhausen, Bottrop, Mülheim an der Ruhr, Essen, Gelsenkirchen, Bochum, Herne, Hagen, Dortmund, and Hamm, as well as parts of the more "rural" districts Wesel, Recklinghausen,Unna and Ennepe-Ruhr-Kreis. Historically, the western Ruhr towns, such as Duisburg and Essen, belonged to the historic region of the Rhineland, whereas the eastern part of the Ruhr, including Gelsenkirchen, Bochum, Dortmund and Hamm, were part of the region of Westphalia. Since the 19th century, these districts have grown together into a large complex with a vast industrial landscape, inhabited by some 7.3 million people (when including Düsseldorf and Wuppertal). It is the fourth largest urban area in Europe after Moscow, London and Paris.

Road transport

A 40 in Essen at night

The Ruhr has one of the densest motorway networks in all of Europe, with dozens of Autobahns and Autobahn like Schnellstraßen (expressways) crossing the region. The Autobahn network is built in a grid network, with 4 east-west (A2, A40, A42, A44) and 7 north-south (A1, A3, A43, A45, A52, A57, A59) routes. A1, A2 and A3 are mostly used by through traffic, while other autobahns have a more regional function. Both A44 and A52 have several missing links, in various stages of planning. Some missing links are currently not considered to be constructed.

Additional expressways serve as bypasses and local routes, especially around Dortmund and Bochum. Due to the density of the autobahns and expressways, Bundesstraßes are less important for intercity traffic. The first Autobahns in the Ruhr opened during the mid-1930s. Due to the density of the network, and the number of alternate routes, traffic volumes are generally lower than other major metropolitan areas in Europe. Traffic congestion is an everyday occurrence, but far less compared toRandstad, another polycentric urban area. Most important Autobahns possess six lanes, but there are no eight-lane Autobahns in the Ruhr.

Public transport

All public transport companies in the Ruhr are run under the umbrella of the Verkehrsverbund Rhein-Ruhr, which provides a uniform ticket system valid for the entire area. The Ruhr region is well-integrated into the Deutsche Bahn, both in passenger and cargo rail.

Air transport

Düsseldorf International Airport serves as the interncontinental airport for North Rhine-Westphalia and is within 20 km for most of the Western Ruhr area. Dortmund Airport in the Eastern Ruhr is a mid-sized airport, offering scheduled flights to domestic and European destinations.

City Focus

Whilst the affluent cities of Dusseldorf and Cologne-Bonn support typically lower yields in the range 3-5%, there are cities within the region which support much higher yields, and are backed by good levels of finance to 80%. These areas are of interest to us at ProVenture and we will be operating in some of them in 2012-13.

For the purposes of this paper, we will select 2 cities, Herne and Gelsenkirschen for a focus on the investment case, although the cities of Duisburg, Essen, Bochum and Wuppertal are also areas in which we expect investment activity in the coming months.

Focus on Herne

In the middle of the region, nestled within and crossed by a myriad of autobahns and trains services, we find Herne, a city of 165,000 inhabitiants. Former employment was focused full square on heavy industry, but as Europe loses much of this to the developing countries, Herne has taken up the slack with service industry and high tech. Unemployment is slightly higher here than the region average of 9%, standing at 13% [2010 figures] but strong job supply. Population peaked in 1975 at around 190,000 and has fallen back over the years in line with many cities in the area. But the declines of late have been very small, in the order of 100s per year. With the expansion of the German economy over the next decade and the resultant migrant workers it will bring in, Herne is set fair for an increase in population.

In terms of its placing across the top 50 German cities based on economic factors for future development, Herne performs well at 11th place. The table below shows Herne's position as compared to other cities in the NRW:

The factors which drive the city ahead are unemployment falling [5% over the last 5 years], an increase in disposable income by 12% and a 22% increase in GDP per capita over the same period.

So, we see a city which is repairing from the boom industrial years of the 70s and 80s and now diversifying and beginning to grow. But the wider investor confidence is yet to take yields down to the more normal levels of the region, and we see some interest here today.

Typical Property in Herne

Located on a quiet side street not too far from the commercial centre by foot, here we found an attractive period property with a lovely side building which has been turned into townhouses. Refurbished in the last year, there are 16 residential units which deliver at yield above 11% and priced per sqm at 516 Euro. The guide price is 540,000 Eur, and finance should be expected in the 70-80% range at today's low rates of around 3,4%. In terms of cashflow, this type of unit cannot be beaten in all the areas in which we operate, at least in this quality of presentation.

In terms of typical rent levels, an average across the city of 4,87 Eur per sqm is paid with the following breakdown according to size:

Compared to income, rents are very affordable in the area. Expansion in rents should be expected if the population upswing occurs and also as the cost of living index increases over time.

Focus on Gelsenkirchen

To the west of Herne is the city of Gelsenkirchen, population bigger now at 260,000 apporx but with much the same character as Herne is terms of local economy and infrastructure.

In terms of local industry, the city houses a large science park and also a solar farm which was the first in Germany, with many off-shoots into the new energy sector as a result. Typical companies are below

In terms of population, the city follows much the same trend as Herne, however parts of the city are already experiencing population growth such as the Altstadt and Feldmark. As far as econmic development, from the table above for Herne, we see the city as 12th over the whole country in terms of forward looking indicators. Big things pulling ahead the rest are unemployment falling 9% over the last 5 years, disposable income up 9.6% and GDP up nearly 16% over the same period.

Rental Scene

Rental levels are much as Herne today, with an average rent in the city of 4,76 Eur per sqm, and across the apartment sizes:

In terms of rental development over the last 12 months, the city shows a general increase of around 5%, and rent still are very affordable

Property Example

We find here a typical apartment house in the Rurhgebeit area, with 12 rented apartments and an asking price of 420,000 Eur which gives a price per sqm of 528 Eur per sqm. Recently refurbished, the unit deliver 10.6% yield and finance should be expected in the 70-80% range again.

Conclusion

As investors, we continually look to new areas to deliver the much sought-after yields in the range 8-12% backed with up to 80% finance at good interest rates. Whilst much of this region delivers yields far below this range, we are finding deals which do meet this criteria which is a real surprise in this economically vibrant region. If you are planning a property tour of Germany, we would be delighted to show you current property examples in this area, you can view a selection here and support your research further.

Chemnitz – View from the Streets So Far

Introduction

At ProVenture Property we are always seeking new markets to offer to our clients. A good deal of our investors seek yield, and yield markets do not stay the same forever, we need to continually search property markets around Europe to continue to deliver the service that clients expect. Our most recent foray in 2011 has been to enter the market in Chemnitz, a major city in the state of Saxony, Germany. As we have been working there for around 6 months now, we offer this report “from the streets” and our findings thus far.

Background to the Market

Should you have missed the article we produced on the investment case for Chemnitz, and why we entered the market - you can read our article on investing in Chemnitz property for sale here.

In the article we made the case for a fairly strong economic position for the city, falling unemployment and in certain parts of the city a strong increase in population and tenant demand. We also pointed out the backdrop of falling population across the city as a whole, although stabilised now, which has perhaps fed into the lower investor confidence / higher yields possible there today.

Looking across the city at rent levels, we see a surprisingly flat picture, with only a few districts not falling in the 4.1 to 5.5 Eur per sqm bracket. Whilst the lower level of this range is supported by social housing being paid around the 4 Eur per sqm level, income levels and demand in the more affluent parts of the city would in usual circumstances support a wider range of rents, with perhaps 7 Eur being the price paid in more of the city in prime property. 

 

This flat picture in respect to rents can be seen as an anomoly. As the city develops, a wider range of rents should be expected, like in most cities across the world. This points to some positioning at the current time towards more prime property and the latent increase in rents, commensurate with demand and the purchasing power of tenants in these areas.

Indeed, looking to how rents have developed between 2009-10, we see a general upward picture from the patchwork below across the city with some areas enjoying rental increase in this period of 10-20%, whilst much of the rent of the city is flat or up or down less than 10%. So pressure on rents in some areas is already being felt it can be said.

 

In terms of purchase prices, it is without question still cheap in this city. The graph below shows that, apart from some small areas [characterized by higher proportion of owner-occupation], property can be had pretty much anywhere for under 1000 Eur per sqm. This figure relates to single apartment sales, multi family apartment houses can often start as low as 350 Eur per sqm for a refurbished and rented property.

 

This picture of flatish rents, low prices, and higher yields / lower investor confidence is very much a hallmark of the markets ProVenture have entered as investors these past 20 years.

Stop Being Boring Mat

But, I said this was an article “from the streets” and we are in danger of another journey into yield calculations and city statistics with Mat here. Let's share some thoughts from some of the streets we have plodded around so far...

Our View on Property Prices in Leipzig in 2016

What will the Property Prices be in Leipzig in 5 Years? We get out the Crystal Ball..

We have written recently of historical house prices in our key markets in Germany, made reference to some of the markets that yield investors are looking at currently and discussed matters of the Euro and the likely effect on values in Germany. In this short article, we will look at the key drivers to property price appreciation and their impact on our key market of Leipzig in Germany.



Some of the key factors which will effect capital values in the next 5 years in the market can be listed as follows:

1 Investor confidence
2 Investor access to finance and finance rates
3 Rental level development
4 Owner-occupation levels
5 Recent capital value trends
6 Affordability

1 – Investor Confidence

One of the hardest factors to pin down and time, but perhaps the biggest factor when it comes to the driving of capital values upwards or downwards. One of the key determinants of confidence within a market is the likely future demand placed for property, and the prime driver for this is a city's population level. Within Leipzig, the population famously fell soon after the wall came down in 1989, but has recovered to a great extend over the past few years. A table of population in Leipzig is given below:

Year	Population
1990	511079
1991	503191
1992	496647
1993	490851
1994	481121
1995	470778
1996	457173
1997	446491
1998	437101
1999	489532
2000	493208
2001	493052
2002	494795
2003	497531
2004	498491
2005	502651
2006	506578
2007	510512
2008	515469
2009	518862
2010	522883

The city has seen a return to growth from 2001, and the rate of increase over the past decade has been one of the highest in Germany. Average estimates are now for 2025 at 538,000 inhabitants, with a high-end estimate of 565,000 by that time. The table below shows the corresponding fall in vacant units in Leipzig, having over the last decade. Investor confidence comes from every one of the following key drivers, but with a strong population growth story in Leipzig, it augers well in terms of under-pinning growth in the coming years.

Right now, an investor feels rightly rewarded with a net yield of between 7-11% in the Leipzig market. With interest rates for 5-10 year fixes at around 4%, there is still room for an increase in confidence pushing yields further down. Yields in a stable market would equate to around 2% over lending-rate, so around 6%. Should yields drop due to this increased buyer confidence, then prices have the capacity to rise by around 40%, should finance remain low.

2 - Investor access to finance and finance rates

Finance is readily available for both international investors and domestic investors, the latter enjoying very high levels of liquidity up to 100% of the property value.

Investment property in Bremerhaven, Germany

The small multi family house in Bremerhaven, Germany contains 4 apartments in a renovated old building which has a full basement and a renovated attic. A new roof was completed in 2008 . The front and rear façades are plastered and painted with new double glazed plastic windows installed in 2005. The property is heated by gas heating, hot water supply is decentralized with boilers in each of the apartments. All apartments have bathrooms fitted with showers, with three of four bathrooms have been updated about 2006/2007. All apartment s are 3 rooms, and all of which have an attractive layout and floor plan.

A fantastic property investment, available at 100,000€ - at this price,  a yield of 11.4% makes this a German property investment well worth investigating.

In addition to the cash flow generated by this fully let building - Condominium prices have already increased an average of 26% across the city since 2009, and with all the fundamentals in place for continued development of the city - we expect a good level of capital growth.

Bremerhaven - A high yielding market in Germany

Exploring Yield Markets – The Case for Bremerhaven, Germany

Our job at ProVenture is to find unbeatable property yield markets for our investors, who come from across the world and have often have a global view on making investments which deliver great returns. It is an interesting task, especially in this period of financial uncertainty and rapid asset price movements. We stick mainly to seeking within developed markets, with history of prices and stability of legal process. Our work has taken us over the last 5 years mainly to Germany, as its economy powers forwards out of the global financial crisis as one of the leaders in manufacturing and export of high-end goods. That is not to say we are myopic in our search, we continue to seek markets around Europe and also in the USA, the latter bringing some interesting opportunity of late for cash-driven investments. Perhaps you have caught our property investment articles on this subject?

But we are, now and for the coming years, continually being drawn back to Germany. The high-proportion of tenants has resulted in some great and stable monthly returns for our investors, and many have enjoyed very good capital growth of the last few years. Germany famously did not domestically participate in the credit binge of the last decade and property prices have remained very favourable for investors to buy into, backed by high levels of finance at historically low rates. Our work in Leipzig for example has resulted in the sales to around 50 investors, from small studios to large property property portfolios with all of our earlier investors in the market [say around 2007-08] now sitting on gains of around 20-40%. A very good result, compared to other developed markets in this period of general decline. And lets remember the average yield on purchase price for our investors has been between 10-11% during this period, producing a useful income whether the investments were made in cash or backed by finance during the period of hold.

But we cannot rest on our laurels so to speak, and have to answer the question so many investors ask us “Where is the next place to buy”. In this paper, we will research one such new market, still in Germany, the city of Bremen and its harbour city of Bremerhaven as potential places to invest in the coming years. Lets look at Bremerhaven first.

Property investing in Florida - A yield investor's holiday

Perspectives on the Florida Investment Property Market

A view from a Yield Investor on the market in Orlando

When planning our annual family holiday, my long-suffering wife has to balance her needs for good weather / shopping with my interest in going to somewhere with a yielding property market. This has resulted in a lot of Scottish holidays in the early years of our marriage, followed up by Germany and eastern Europe for the last few years. I have to say, my wife has compromised heavily on holiday weather on occasion. I am not sure how I got away with so many Leipzig 'holidays' in the last few February half-terms, having family fun in minus 20 conditions. I am still unclear why my wife stays with me, she is 10 years in now, I am sure she has her reasons. So it was a pleasant diversion for the family (in particular my wife) this year to go to balmy Florida for Easter for holiday, from where this rambling "postcard" comes.


For the past 20 years Florida has been a part of the world that is very familiar to us to be fair, my brother and sister have lived there since the 1990s and so have my mum and dad on and off (until my dad fell out of a tree, another story). And so, we have visited many times to visit family, and seen the journey my family and friends have had in property over this time and have some perspective on the market. Why I am tapping this away from a cramped economy return seat on Virgin Atlantic is to jot some ideas down, hopefully for some interest to investors looking at the market or just looking how property markets develop in general. I have watched with keen interest the market develop from a relative affordable base in the mid 1990s, through rapid growth each time I revisited until 2006. And this is my 3rd trip back during this financial crises. But the real raison d'etre for looking more deeply into this market was provided by a cockney fellow I overheard on the telephone , apparently to his wife. It was day 2 of the recent London Property Exhibition, and it seems he had made an acquisition:


"You sittin' down luv? Well me and Dave popped into some property thing after going to the body builder show" [The London Excel was hosting 2 exhibitions thus weekend, for what you thought was a mutually exclusive audience]


"Well, guess what I bought today? You're never going to guess"

1.035M€ Property Investment in Leipzig, Germany 8%+ Yield

Proventure Property are pleased to present this investment object in Leipzig, Germany.  Located in the heart of the city in Saxony, this very well presented building of mixed use contains both residential and commercial units and is over 1,000sqm.  

The rent list of this Leipzig property is available on request from James at ProVenture Property.  In broad terms the property consists of around 870sqm of residential apartments and 190sqm of commercial real estate.  The commercial units are currently rented and 85% of residential units are tenanted.  Full details are available for inspection during the due diligence process.