European properties in demand from German insurers

25 June 2015

The German insurance industry will continue to invest in the German property market, despite rising purchase prices, according to an EY survey.

Of companies polled, 88% plan purchases in Germany (2014: 85%), while 31% (2014: 41%) want to sell in Germany.

But the demand for European core properties has increased significantly, with 69% of respondents planning acquisitions (2014: 56%).

These are among the findings of the survey, Trend Barometer Real Estate Investments of Insurance Companies in 2015, which EY Real Estate has carried out for the eighth year in a row among the leading insurance companies.

"German insurers clearly wish to expand their real estate portfolios, in particular in the European core real estate markets," explains Dietmar Fischer, partner in EY Real Estate.

The allocation to real estate within insurers' portfolios will increase from the current 7.6% to 8.2 % by the end of 2015, measured at fair value, the survey suggested, with the split 5.8% for directly held properties and 2.4% for indirect investments.

"For many insurers, real estate is currently the asset class that is most developed," noted Fischer. It reflects the lack of investment alternatives caused by low interest rates, especially in the pensions areas, he said. So extending the investment horizon is becoming increasingly important.

Some 65% of respondents say that they are putting even more emphasis on diversification beyond national borders. They are responding to increased competition at home, driven by the activities of international investors in the German real estate market

The retail sector emerges as the most popular in 2015, with 80% of the insurers surveyed planning to invest this year in this type of use. But the increasing competition in the segment as a result of e-commerce means investors are being more selective, and 87% of respondents indicate that the selection of tenants is more important than ever.

About 90% of survey participants expect speculative commercial development projects to increase.

Solvency II apparently does not worry the respondents, said EY, since 63% do not expect any significant change in investment strategy as a result of the forthcoming introduction of the new regulatory framework.

"Property still enjoys very strong popularity among respondents," said Fischer. "Insurers want to secure long-term investments and generate stable earnings. Capital preservation and hedging their guaranteed products are paramount. "

EY said that companies that took part in the study form a representative cross-section of the insurance industry with each participant holding average real estate assets of about €2.8bn ($3.14bn).