For years, Germany has been a safe haven for real estate investors and has broken one transaction volume record after the other. Then Covid-19 hit and investment markets around the world contracted quickly.
Insecurity is poison for long-term investment decisions, but as we slowly move into the 'new normal' investment activities will at some point increase to pre-crisis levels.
However, as previous downturns have shown, investors will reassess market risks. This applies to location and sectors such as offices, retail and residential. For example, following the Global Financial Crisis, risk premiums for offices let to banks and companies working in the financial sector increased significantly.
While it is still too early to say how risk premiums may apply this time, it’s clear that markets and sectors will be assessed in how far they are impacted by Covid-19. As a result, countries and regions that are perceived as managing the pandemic better will be at an advantage.
Germany is in a good position to not only keep its safe haven status but to further strengthen its reputation for three main reasons:
- Germany has one of the world’s best healthcare systems. The number of testing sites, intensive care beds and ventilators in Germany is much higher than the international average. This allows the country to control the pandemic better than many others.
- Given its social security system and using tried and tested furloughing, Germany is able to absorb the financial implications of the crisis better than others. While unemployment has increased, this hasn’t been at the same rate as, for example, in the US.
- The country’s strong financial firepower enables it to fight the crisis and its consequences. With a public debt rate lower than 60 per cent of its GDP, Germany has one of the lowest debt rates of any of the major economic powerhouses. On average, the debt rate of the G7 countries is almost twice as high at 114 per cent.
Past experience teaches us that many investors stay risk averse for many years after a crisis. This is likely to be the case again and may even continue for longer. As a result, in a post-Covid-19 world, Germany is likely to become even more attractive as a safe haven which could lead to new transaction and price records.
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