Property markets will benefit from the favourable economic outlook for another year and expand again. This means that the markets where MünchenerHyp is active will be affected as follows:
The German housing market will again be characterised by excess demand in 2018. This will apply equally to the user market – in other words, demand for owner-occupied housing and rental housing – and institutional and private property investor markets. Demand will continue to be driven by both low interest rates as well as demographic developments. The increase in the number of single-person households, in particular, will lead to a further increase in the number of households, as will population numbers which are growing again. In addition, demand on the part of owner-occupiers and capital investors will remain at a high level because the tight supply of properties noted in recent years was unable to satisfy existing demand.
In view of the high capacity utilisation rates noted for the construction industry, and the declining number of building permits recorded during the year under review, the supply of housing cannot be expected to increase noticeably in the future. Furthermore, the vacancy rates posted over many years in cities is substantially below the required fluctuation reserve. As a result, the accelerated pace of price increases will also continue in 2018.
The outlook for the German commercial property sib also favourable. Heavy demand for commercial properties, and especially office properties, will continue to be shown by national and international investors. The number and volume of transactions will be generally determined by the limited supply of available properties, especially in the seven biggest markets. Thus, experts anticipate the volume of transactions to stabilise at the high level seen in 2017.
Market conditions in the user market in 2018 will be driven by unbroken high demand for office space, which will remain in very tight supply – especially in the preferred office locations. Newly built office space will also remain scarce in view of the high rate of pre-completion leases signed. This situation is likely to lead to a renewed increase in rents in the seven biggest markets. Coupled with great pressure on institutional investors, which will lead anew to slightly declining yields, prices paid for commercial properties will initially rise further. It is felt that only a notable increase in interest rates in the capital market can halt the decline in initial yields and stop prices from rising even further.
Further developments in the UK property market will continue to be influenced by the potential economic effects of Brexit. However, as forecasts for 2018 only anticipate a slight weakening in economic growth, international investors are again showing interest, and especially in the London property market. This indicates that Great Britain is likely to hold its top-ranked status in the European investment market in 2018. However, as the office user market is in a very advanced phase of growth, is appears likely that the trend towards more stable rents that surfaced in the second quarter of 2017 will continue. Development of the residential property market depends to some extent on the number of companies that will move their head offices, and the attendant jobs, to other European cities because of Brexit. This is particularly true for the greater London area where prices for houses are expected to rise at a slower pace than in the rest of Great Britain. This development is likely to be far more visible in the rental housing market. While rents are forecast to decline in London, they are predicted to rise by 2 percent in Great Britain in 2018.
The economic upswing is making French property even more attractive for international investors. In addition, favourable fiscal conditions are also contributing to France’s appeal. Thus, based on the assumption that there will be a sufficient supply of properties, the volume of investments is expected to increase. In view of the unchanged low level of interest rates, the French property market is predicted to continue on its upward trajectory among users and investors. It is also foreseen that the market will be marked by a further rise in prices paid, and higher rents.
The Dutch investment market is also experiencing overall favourable conditions in 2018. Demand for property will increase again, especially among foreign investors. The market is expected to grow in view of limited supply and investors’ willingness to make riskier investments beyond prime locations. Investors will remain focused on office properties as high demand for office space in the user market promises higher property valuations due to rising rents. The tight availability of properties in the institutional housing market is likely to continue and lead to declining residential property yields in portfolios. At the same time, a noticeable revival of new construction activity is expected and will benefit the development of projects and buildings under construction.
The segments within the Swiss housing market will increasingly develop differently. The decline in rents will continue in the rental housing segment as the share of new rental housing as a percentage of total new housing under construction is expected to remain high. In contrast, prices paid for private homes and condominiums will continue to rise further. This development is supported, on the one hand, by the unchanged low level of interest rates and, on the other, by notable excess demand.
Although forecasts for the American commercial property market are mixed, they do anticipate that the phase of growth will slow. It is expected that the vacancy rate in the office properties market will rise slightly despite declining levels of new construction. Rents are also expected to continue growing at a slower pace in certain regions. This development may lead to a renewed reduction in the volume of investments made in commercial properties. The housing market is experiencing brisk new construction of multi- family houses, thereby offering numerous purchase options to the investment market. In contrast, the pace of rental increases is expected to weaken further in the rental housing market.