a German perspective
“The ability to use space for other purposes has become just as important as the location. Accordingly, there is great reluctance on the part of users/tenants whose structural requirements deviate from conventional office use. Innovations in the building fabric are already starting to facilitate convertibility."
Nicolai Baumann
Principal & Managing Director Head of Office Leasing
Avison Young Germany
The World Bank’s Digital Development Global Practice has examined COVID 19 stimulus programmes across the world. For Germany in particular, the need is seen in the optimisation of digital connectivity.1 Here, the Federal Republic is losing ground in international comparison. The Scientific Advisory Council at the Federal Ministry for Economic Affairs and Energy also summarised the problems and need for reform of the public infrastructure in Germany in an expert report in June 2020. The result: the state is not investing enough to ensure the provision of modern infrastructure in the long term.2 Where the state withdraws (e.g. lack of investment in educational institutions, closure of public hospitals, etc.), private investors sometimes fill the gap. This is then reflected in the increase in public schools3 or medical care centres (MVZs). MVZs are facilities for outpatient medical care, their development since 2004 is based on the GKV Modernisation Act of 14 November 2003. Today there are around 3,500 such centres across Germany.4 Furthermore, digitisation brings new users to the market in the form of data centre operators.
Finding the right property for special uses in the medical, social and green sectors is always a challenge. In addition to the nature of the property, the reluctance of the owners makes things even more difficult. As a rule, they prefer conventional office users. In the case of special uses, much more time passes before the lease is signed or the tenant moves in, during which no rental income flows. In addition to high official requirements, e.g. in the area of fire protection, special fittings are usually necessary, e.g. to ensure water connections in all rooms or to increase the load-bearing capacity for medical equipment. This significantly restricts the ability of the space to be used by third parties. Despite the duration and the high intensity of consultation, this route can be an interesting alternative for owners: e.g. medical professionals as tenants offer long lease terms and higher rents, especially in secondary locations these are often above market level. With lease terms of 30 years, development costs have been amortised.
“The leasing processes in the medical use sector are often accompanied by increased complexity and market resistance. If these initial peculiarities are sufficiently addressed by real estate professionals, the output usually holds out the prospect of lower price sensitivity on the part of the user and a longer leasing period.”
Julian Klein
Consultant Office Leasing Hamburg
Avison Young Germany
Overall, we see a differentiation of the real estate market, driven by various overlapping trends, such as the growing dependence on the digital network or the ageing of society resulting in increased demand for medical services. Owners will increasingly have to face new user groups or uses, just as the classic office users will have to think about space-saving potential through home office options.
Similarly, properties that accommodate utilitarian uses are moving further into the investment focus. Boosted by low interest rates and investment pressure, they can be attractive to investors looking for a long-term investment product.
The discussion about investment in infrastructure - also as a measure to give positive impetus to the economy weakened by the pandemic - will gain further momentum in this election year. For the real estate industry, this is an opportunity to further increase the flexibility and convertibility of buildings by investing in innovation. This is already a criterion for certification according to DGNB.5
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Footnotes
1 http://documents1.worldbank.org/curated/en/136631594937150795/pdf/World-Bank-Group-COVID-19-Crisis-Response-Approach-Paper-Saving-Lives-Scaling-up-Impact-and-Getting-Back-on-Track.pdf
2 https://www.wiwo.de/technologie/digitale-welt/ranking-zur-wettbewerbsfaehigkeit-deutschland-faellt-im-digitalen-wettbewerb-weiter-zurueck/26235682.html
3 http://www.sozialpolitik-aktuell.de/files/sozialpolitik-aktuell/_Politikfelder/Gesundheitswesen/Datensammlung/PDF-Dateien/abbVI32b.pdf
4 https://www.kbv.de/media/sp/mvz_entwicklungen.pdf
5 https://static.dgnb.de/fileadmin/dgnb-system/de/gebaeude/neubau/kriterien/Kriterienuebersicht_DGNB_System_Version2018.pdf
