GERMANY Trends and Developments Contributed by: Carsten Loll, Otto von Gruben, Ivo Veit Wanwitz and Sebastian von Hornung, Latham & Watkins
Key private equity players in the German market Germany’s PERE market features a combina - tion of domestic and international players. While global funds have historically been active in the commercial real estate landscape, recent market shifts have prompted a stronger focus on dis - tressed opportunities. Meanwhile, German insti - tutional investors continue to lead in core and core-plus strategies, particularly in multifamily housing and infrastructure investments. There is also continued interest from cross-border inves - tors in logistics, infrastructure, and alternative sectors, with increasing exposure to residential and digital assets reflecting broader shifts in investor priorities. A common feature of the German PERE land - scape is the widespread reliance on operating partner models. Private equity firms, particularly those entering from abroad, frequently team up with local operating partners who provide on- the-ground expertise in asset management, leasing, development, and navigating regulatory complexities. This model is especially prevalent in residential real estate, where deep market knowledge, technical knowledge, and tenant engagement are critical. It is also gaining traction in the data centre space, where local partners play a key role in site acquisition, securing power supply, and managing technical specifications and tenant needs. These collaborations allow private equity investors to scale efficiently and manage operational risk in an unfamiliar market. Investment targets: data centres and residential real estate Data centres: a high-growth sector The demand for data centre investments in Ger - many has surged due to the rapid expansion of cloud computing, artificial intelligence, and digitalisation. Frankfurt has emerged as one of
Europe’s largest data centre hubs, with Munich and Berlin also gaining traction as secondary markets. The increasing reliance on cloud ser - vices and digital infrastructure has fuelled the need for high-performance data facilities such as hyperscalers, attracting significant private equity and institutional investment. Legal con - siderations are crucial in this sector, particularly regarding zoning laws under the Baugesetzbuch (BauGB), environmental regulations, and com - pliance with data protection standards as out - lined in the Bundesdatenschutzgesetz (BDSG). Investors must navigate complex permitting processes and adhere to stringent regulations concerning immission control (ie, the measure - ment of the concentration of substances in the atmosphere) and energy consumption. Sustainability considerations and ESG compli - ance are also shaping the sector, as investors seek assets that integrate renewable energy solutions and energy-efficient designs. However, data centre investments are not without chal - lenges. High energy consumption poses poten - tial constraints, and the competition for suitable land in prime locations is fierce. Additionally, the rising costs of construction and materials have led investors to be more strategic in capi - tal deployment. Legal frameworks around land use and construction standards require careful attention to ensure compliance with the BauGB and mitigate risks. Grid connection and grid operator issues are critical for data centres, given their substantial energy requirements. Ensuring a reliable and efficient grid connection involves negotiating with local grid operators (network operators) to secure adequate capacity and favourable terms. This process involves compliance with the Energiewirtschaftsgesetz (EnWG), which governs energy supply and network access in
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