Germany's Deka boosts 2017 property AUM by €2bn to €34bn, sees further yield falls

Tower 185 in Frankfurt © D.R.

Deka Immobilien, the property investment arm of the German savings bank system, boosted assets by €2.2bn last year to €34.3bn, transacting €5.9bn in total, buy and sell. It sees global markets staying steady in 2018, with generally rising office rents and a slight fall in yields.

Matthias Danne, board member for real estate, told journalists on Tuesday the bank posted 2.3% returns in its private-saver property funds last year, well above returns for other asset classes. However demand from German savers was so strong that the annual €1.1bn contingent that it accepts from the nationwide Sparkassen system was already filled by May. The bank sets a limit to capital intake in its 'retail' funds in order to keep an orderly placement process.

"We look back on 2017 with a certain satisfaction since it marked the ninth year in a row that we grew assets by more than €1bn," Danne said. Over the 10 years since the start of the financial crisis Deka has doubled property fund volume from around €16bn, and transacted about €30bn in volume - of which €22bn in acquisitions, or 560 different deals.

Highlights of last year were Deka's purchase of Frankfurt's Tower 185 for €775m, the largest German single asset acquisition of 2017, and of the Liv Portfolio in The Netherlands, for which it paid €360m. BIE sources said the tower was bought at a cap rate of just under 4%. But with vacancies that can be filled and some rents below market, the asset should yield over 4% p.a. going forward. The asset has been placed in four separate Deka Immobilien funds.

In Britain, Danne told journalists that Deka invested against the trend last year and, despite the lack of clarity surrounding Brexit, he does not expect London to lose all importance as a financial centre any time soon. With partners, Deka last February took over Facebook's new UK HQ at 1 Rathbone Square in the City of London for €444m and in April paid €547m for Cannon Place, above Cannon Street station. He told BIE that the assets were good value and carry long leases.

In real estate financing, Deka placed €3.4bn last year, the vast majority in new business rather than loan extensions. Aside from commitments in Germany, it focused quite strongly on North America and the UK, while downplaying Italy.

Looking ahead, DekaBank economists and investment officers agree that the global developed world upturn will continue in 2018, with almost no inflation and ongoing very low interest rates; a solid expansion should also continue in most emerging markets,. "I can't remember a time when such a constellation has been in place," Danne said. "This is having an impact on property markets; in Europe we expect further falls in vacancies and, particularly relevant for us, further rises in rents."

Looking at the German domestic market Danne said: "We are working on the assumption that prices will not decline and that 'peak-of-the-peak' office rental levels in the Big Seven cities will drop to about 3.2% from 3.3% last year." But Deka is cautious. "These rates are 30-times yearly rentals! It was only five years or so ago when this was at 12 times," he told journalists. "This is a situation we had in place 12 years ago in Japan and we all thought at the time that it was pretty crazy."

DekaBank this year celebrates the centenary of its founding in February 1918 in Berlin as the central institution of the nation's fledgling savings bank system. The original institution DGZ (Deutsche Girozentrale) founded the investment arm Deka (Deutsche Kapitalanlagegesellschaft) in Frankfurt in the 1950s and it began activities in 1956. The two institutions merged in 1999.

Business Immo
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    Matthias DANNE

    Member of the Board of Management of DekaBank Deutsche Girozentrale responsible for Finance, Treasury and the Property business division


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