HOCHTIEF Projektentwicklung

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August 2016 | Shortage of construction sites

Building lots are scarce—particularly in attractive downtown locations in the Top 7 cities. This is pushing up lot prices and making it more difficult for project developers to acquire suitable spaces. In the meantime, some sellers’ asking prices are forcing up entry prices so much that the limits of all other parameters are being reached, rendering it difficult to make reliable calculations. Competition between different types of usage is constantly on the rise. In the view of Gordon Gorski, Managing Director of HOCHTIEF Projektentwicklung GmbH, the main victims here are the residential and office segments, and he says that diverting to urban outskirts may help in building residential projects but would achieve very little in the area of office real estate.

The trade journal, Immobilienmanager, has taken the current situation in the construction lot market as its lead story. There it says that industry representatives are repeating with mantra-like regularity their demand for the zoning of more land for construction. However, the situation is not equally precarious in all of the A-list cities. Berlin, for instance, has greater reserves of space than Cologne. In addition, Gorski does not see residential usage in the top cities as an advantage per se. He says the situation is less difficult for the commercial and hotel segments because, for these kinds of usage, locations that are less subject to noise protection rules can potentially be used. 

Gorski is nonetheless convinced that the residential segment currently has the best chances of winning the battle for scarce construction land. “There is great demand here at the moment. The cities are also interested in appropriately addressing the pressure of demand. In part, residential construction is therefore actually displacing activities for other types of usage. Increasingly, residential real estate is being built virtually exclusively on lots where mixed usage is permitted.” Gorski however believes that there are good opportunities for hotel real estate as well. He says that new brands are gaining a foothold in the German market, primarily with the strategic aim of securing a location there at any cost. 

Given the low availability of construction lots, project development now calls not only for more time but also more willingness to compromise. These two qualities and staying power are also needed when it comes to revitalizing outdated office buildings and abandoned lots. However, Gorski says, these are obvious alternatives to greenfield sites. In the case of refurbishment, a preservation order for an existing structure and updated usage may even prove to be an advantage over a new-build. He says that the greatest potential comes from the revitalization of conversion sites although, as a rule, this can be a significantly lengthier undertaking, and the right mix of use is also crucial.

 

Link to the article “Gap filler” (pp. 7 and 8, only in German language available)