Corporate overview

HIH Invest Real Estate is one of the leading investment managers for real estate in Germany and Europe. We adopt a future-oriented approach to finding, developing and managing properties in the interests of our clients. Decades of experience, proximity to the real estate markets and a tight-knit network allow us to identify real estate opportunities and quickly implement them in the right phase of the market. Around 220 institutional clients have entrusted their investments to HIH Invest Real Estate. Our specialists for structuring, product development, real estate management and market development all work to develop the right investment solutions for them. 

Investment principles & strategy

We offer a broad spectrum of investment solutions. These range from risk-diversified real estate fund solutions pursuant to the German Investment Act – with a defined investment strategy, a varying country and sector focus and different risk profiles – to individual solutions for club deals or separate accounts depending on the respective risk/ return profile of our investors. This gives institutional investors a chance to benefit from our profound real estate expertise and high degree of vertical integration, either by investing in intensely managed real estate products, with HIH Invest Real Estate effectively covering the life cycle of a given property end to end, or by taking advantage of selected components within the framework of individual mandates. Regardless of the solution chosen, HIH Invest Real Estate sets itself apart with its consistent customer orientation, extensive property know-how, in-depth market knowledge and broad-based network. 

Strategic corporate development

HIH Invest Real Estate designs and implements structured real estate investment solutions in accordance with the German Capital Investment Act (KAGB) so as to give institutional investors the opportunity to invest in European real estate markets. The products are tailored to bespoke investor needs and complemented by a flexibly combinable service spectrum. We maintain local offices in many cities in Germany and Europe, and are continuously expanding our network. We see the combination of our extensive property know-how and network, and our integrated services with local expertise and in-depth market knowledge, as the key to our continued success.

Sector forecasts

OFFICE: European office markets in the CBDs of global cities and economic centres saw almost full occupancy and very limited speculative development before COVID-19.These fundamentals continue to be stabilising forces given the impact from the lockdown and the recession in 2020. Seeing an ongoing economic recovery going into 2022, the German market for office real estate offers many opportunities, driven by solid fundamentals and stable employment. Nevertheless, remote working and the ongoing discussion about work- ing from home, future demand for office space and other issues will change the demand for office real estate. Modern office space with strong ESG alignment located in CBDs will be the most resilient assets. Core office properties with stable cash flows and strong covenants from tenants will also be seen as an alternative to bond investments in the medium to long term – especially regarding inflation concerns. Due to the macroeconomic framework and structure of the real estate market, Germany retains its position as a safe haven in Europe – also for international capital. In light of the strong investment demand, yields in the core segment remain stable, decreasing slightly (initial net yields for core office buildings in the ‘Big Seven’ are at around 2.7% and are even lower for some trophy buildings and in some cities like Berlin, Hamburg or Munich), but could increase for higher risk profiles like value add and opportunistic. Yields in growing regions reach up to 3.5% and have a yield risk premium of around 100bps on average compared with the ‘Big Seven’. Overall, the quality of asset management, ESG, and a properties’ building and location quality play an ever-larger role.

RETAIL: The impact of COVID -19 on retail varies according to the respective retail subsector. Shopping centres and high-street retail have been hit by the lockdowns, hygiene measures and changing shopping habits. Further market adjustments and a changing retail landscape are expected. With the ongoing economic recovery and the comparatively stable fundamentals in Germany, the situation for retail in Germany is probably more robust than in other European countries. In addition to the ‘Big Seven’ cities, there are a number of growing urban centres with positive demographic perspectives boasting high retail centrality and other features conducive to the sector, such as tourism, universities and a high recreational value, thereby creating stable retail markets in the long term. Nevertheless, the coming times will be challenging for retail – even in cities with positive long-term fundamentals.

With the market share accounted for by online retail on the rise, omni-channel concepts have progressively gained importance. At the same time, fashion retailers continue to be of great importance for high-street locations. However, their concepts are subject to massive changes and should be scrutinised and examined in detail. In addition to high-street locations, local convenience centres and neighbourhood centres anchored by a supermarket are attractive additions to any portfolio. These concepts are currently much less exposed to competition from online retailers than shopping centres and high-street shops. Given the resilient fundamentals, investor demand for such concepts has increased, and demand in growing regions will continue to exceed the available supply over the next 12 months, which means that yields are expected to remain low for retail parks and neighbourhood centres. Differentiation by type of use, location and concept is particularly essential when evaluating and selecting the right properties. Given their social hub status, these selected neighbourhood centres contribute towards ESG strat egies as their systemically relevant local supply character comes naturally, benefiting from high building and concept quality.

INDUSTRIAL: COVID-19 catalyses the long-term megatrends supporting the growth and economic importance of logistics. The megatrends include the strong momentum of online retailing, e-commerce and digitalisation, among others. Additional drivers for logistics are a re-thinking of supply chain resilience, an increase in stock holding for critical products (at least) and potential re- and near-shoring activities in the industry. Impairment of supply and production chains due to capacity bottlenecks should be recognised as tem- porary, albeit having led to increased prices in many industries. However, normalisation of process chains following an adjustment of production capacities should reduce said price pressure in the short to medium term – an effect that is already visible for the first goods. It is therefore reasonable to assume for the investment side that initial yields will continue to decline in the medium term. In addition to the brisk demand for logistics facilities is the limited supply in many cities and the competition with other types of use for land located close to cities. It is further exacerbated by the highly restrictive zoning of logistics facilities in some countries, which makes a swift supply expansion virtually impossible. In combination with the still significant yield differentials between logistics properties on the one hand and office and residential proper- ties on the other, these parameters are likely to ensure that logistics space will continue to be in strong demand in 2022 and further expand its contribution to portfolio diversification. The sector remains to be ‘everybody’s darling’. However, this will be reflected in diminishing yield differentials between logistics and office as the logistics sector becomes more institutionalised.

RESIDENTIAL: Much like logistics, residential is ‘everybody’s darling’ currently. Investments in this sector offer a safe, resilient and steady cash flow. While being one of the safest asset classes in the real estate industry, initial net yields within the ‘Big Seven’ seldomly exceed the 3% range, and are expected to reasonably decrease in the ‘safest’ micro-markets (seeing their lowest return in Berlin, Hamburg and Munich). At the same time, the sector offers opportunity in growing regions where soft rent-caps have not yet been fully reached, such as suburbs of sprawling metropolitan areas. These smaller townships to medium large cities located in regions with growth potential often benefit from the urban sprawl of a nearby ‘Big Seven’, allow- ing for more attractive yields in the 3.5–4% range. Residential investments in up-and-coming areas with acceptable risk-return profiles will likely increase as the ever-growing popularity of the sub-sector continues to hold among risk-averse institutional investors. It is met by scarcity of supply, increased construction costs due to supply chain disruptions caused by the COVID pandemic. Regarding the EU taxonomy, investments in the residential sector of smaller cities and the suburbs will likely evolve from a seemingly opportunistic to a future proof strategy. Modern subsidised housing regulations offer attractive opportunities for long-term investors, who wish to hold their assets, as well. Projects including subsidised housing benefit on the one hand from various government funding instruments, which reduce construction costs, and on the other hand from a very high level of rental security in management. After the subsidy expires, the flats are transferred to the freely financed market. In the end, the long-term investor has an investment for which there is no longer a rent commitment. Finally, funds with ESG strategies will continue to find residential investments to fit their portfolio requirements. Projects built to the German KfW 55 energy efficiency standard are especially popular with investors. 

Performance verification

The fund performance is calculated using the standard BVI method for regulated German special AIFs (time-weighted performance calcula- tion). The BVI method employs investment fund prices and therefore takes account of all fixed costs inherent to the fund. The BVI performance results of our funds are delivered to MSCI for sector-wide benchmark analysis (SFIX). In addition, we agree performance targets with our clients based on IRR and income returns (time- and money- weighted performance calculations) at fund and asset level.

COMPLIANCE STATEMENT

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