Annual report 2020

Mr Hügler, could you summarise how the market for private property financing has performed against the backdrop of the coronavirus pandemic?

Thomas Hügler: Due to branch closures by our partner banks, there was a brief decline in demand during the first lockdown. But the situation soon calmed down again. As the year progressed, demand rose sharply again compared with previous years.

Let's look at the details: people have spent a lot of time cooped up at home. Has this changed their view of living and residential properties? What effects have you noticed?

I think that the issue of working from home has become more socially relevant, and is now acceptable. As a result, there has been a shift in demand for properties, too: extra space is required at home, and an urban location is no longer so crucial. One factor remains important: low interest rates mean that properties are still affordable, even though prices continue to rise. Demand from our customers remains dependent on long-term interest-rate hedging.

Mr Polland, people worked from home a lot, which also means that they spent less time in the office. The utility value of offices seems to be diminished. Is that your impression?

Jan Polland: Properties are generally a long-term investment. Many developments, such as multilocal working and increases in space efficiency, are not new to the property industry – coronavirus is simply accelerating the process here. However, the drawbacks of the often imposed spell of working from home are also becoming apparent. Offices are places of interpersonal encounter and creative exchange. Not every employee has a quiet study to work in at home. Working from home is an add-on, and rarely a substitute for being in the office – not to mention unresolved legal issues, costs and technical practicalities. I think that in terms of office work, we will increasingly have a hybrid working model that drive down demand for space to a certain extent. On the other hand, new workplace concepts will provide for greater distancing between employees in order to ensure hygienic standards. We assume that the market remains attractive to investors, even though coronavirus will not leave us unscathed.

So is the commercial property boom over? How will that affect MünchenerHyp’s business

No, not at all. Firstly, there are few attractive alternative investment opportunities at the moment. Secondly, with interest rates remaining low, financing costs are still low, too. However, we have noticed market uncertainty: the possible economic impacts of the crisis are not making investment or financing decisions any easier. We know that potential negative economic consequences usually affect the property market further down the line. At present, despite intense competitive pressure, we are tending towards more defensive lending structures, and stressing the cash flows of the mortgaged properties to be financed in all directions – including the obligatory “coronavirus scenario”.

Mr Hügler, town centres are dead, office towns are deserted – instead, people are heading for the countryside in their droves. Is the age of urbanisation over? What impacts do you see on the property business?

Demand for residential properties in the affluent suburbs of major cities is rising sharply. Where cultural attractions and proximity to the workplace used to be reasons for moving to conurbations, there is now an increasing focus on affordable housing with leisure options in the countryside. This trend is stoked by employers’ willingness to embrace working from home, as the time factor of commuting is less of an issue. Therefore, a proper work/life balance away from the cities and closer to nature is becoming even more attractive to many people.

Mr Polland, coronavirus is affecting different sectors in very different ways. How have the submarkets performed?

The logistics properties have performed very positively. Germans increased their online shopping by more than 50 percent during the pandemic. In addition, the return of global supply chains from Asia to Europe led to higher demand. Things are set to stay this way for the long term. The market for residential properties also performed extremely well. 30 percent of properties traded in 2020 were residential property portfolios. The office property market is stable -– lots of properties are on let on a long-term basis. Retail and hotels are struggling at the moment, although there are distinctions here, too: for instance, retail parks with local amenities are proving hugely popular.

Mr Polland and Mr Hügler, 2020 taught us that it is hard to look to the future. But let's try it anyway: how do you expect things to pan out in the year ahead? Where do you see challenges and opportunities for MünchenerHyp and its investors?

Jan Polland: In terms of our new business targets, we aim to keep on growing, within reason. However, there are obviously some unknown factors, particularly regarding further economic development, as well as some global political challenges. But risk assessment is our core skill: I think we can justifiably expect a long spell of robust economic strength, particularly in Germany. We should look ahead positively.

Thomas Hügler: Working from home will remain relevant even after the pandemic restrictions have been lifted. Employees will continue to insist on their new-found freedom and quality of life. In my view, this is resulting in changed, yet still strong demand for residential properties “in the countryside” and in the outlying commuter belt of conurbations. This is reducing the major demand gap in the big cities, and price rises will level off somewhat. Interest rates are likely to remain largely unchanged.