Aberdeen secures €150 million for launch of German property fund

Aberdeen said the venture differs from similar funds by investing in both residential projects and mixed use developments to provide potentially higher yields than investing solely in residential, as most funds of this kind do.

Aberdeen said its aim is to grow the fund to €1.5 billion.

Investing in residential property is very attractive in Germany. With the yield on 10-year Bunds at only around 0.2 per cent and yields on investment-grade corporate bonds also low, many pension funds and insurers are looking to property to provide them with secure, growing income.

High quality German residential property currently offers an average gross yield of 4.5 per cent which is a more stable, albeit lower, income stream compared to office and industrial assets.

Residential development levels are not keeping up with demand in Germany, suggesting there is potential for further rental and capital growth in the years ahead. A total of 245,300 homes were completed in 2014, but forecasts suggest that Germany needs up to 400,000 new homes each year.

Investments that combine residential with retail – for example, a block that includes a supermarket or a medical centre as well as homes - can be attractive. Mixed-use investments can often provide higher overall returns than residential on its own, without adding a significant amount of risk. The sectors can, in fact, complement each other. The residential part offers low vacancy rates and low tenant turnover, while the retail part holds the attraction of long-term leases.

To put this in numbers, Aberdeen estimates that a typical gross yield for newly built residential property is about 4.5 per cent. A typical yield for convenience retail – smaller and mid-sized stores serving the local neighbourhood – is around 6 per cent. Combining the two might provide a gross yield, for a mixed-use asset, of a little over 5 per cent. Another advantage is practicality. An institutional investor might find a single supermarket too small to bother with, after considering the costs in manager time required to invest in and

then look after the asset. Mixing a supermarket with residential property, however, could increase the value of the investment.

A final benefit is the sheer number of mixed-use developments in residential areas in central locations of German cities. The government supports mixed-use districts and is happy to encourage them by easing construction requirements and emission controls so the range of potential investments is extensive.

Fabian Klingler, head of direct property at Aberdeen Asset Management, said: “The successful launch of the Aberdeen German Urbanisation Property Fund reflects the appeal of long-term, stable income streams to local institutional investors. Low construction activity relative to population growth means there is a demand-supply imbalance, particularly in metropolitan areas across Germany. Aberdeen is a leading investor in German residential property and this new Fund will aim to invest in this theme by acquiring and developing residential and mixed-use assets.”

Aberdeen is the second largest residential largest residential property fund manager in Europe, managing nearly EUR5 billion of assets, of which over €3 billion is located in Germany.

Meanwhile, Gerhard Fusenig has rejoined Aberdeen’s board with immediate effect having previously served between 2009 and 2012 following Aberdeen’s deal to buy a Credit Suisse business in 2008.

He stepped down when Credit Suisse sold its Aberdeen shareholding.

He replaces Jim Pettigrew who Aberdeen confirmed had now left the board after six years, as announced in January.