From macro strategies to micro strategies

• Germany currently offers commercial real estate investors an environment with almost perfect conditions, and in such an environment risks cannot be avoided even in the core segment. However, to not take risks today is also costly, not only in terms of forgone returns but also in the form of penalty interest from the banks or negative yields (in real terms) from investments in German government bonds. Waiting, therefore, is an extremely unattractive option, especially as the cycle could last even longer than most consider possible. However, a macro strategy targeting prime office properties in central locations in the top seven cities, for instance, only promises relatively low total returns since prime yields are not expected to harden significantly further.
• For investors aiming to be invested until the next cycle or longer and for whom the current low initial yields are adequate, this medium-term outlook is unimportant. As one of the largest and most stable national economies in the world, Germany offers these investors outstanding fundamentals with correspondingly favourable potential returns. For all others, it is impossible to look beyond a micro strategy that delves intensively into the details of individual use types, locations or properties. In this report we outline potential starting points for such an approach.