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Germany is the most popular location in Europe for foreign investors at the moment, said Roger Barris, managing director and European head at Merrill Lynch London, in remarks on Wednesday at an Urban Land Institute panel discussion in Frankfurt am Main.

'Germany is probably number one on everyone's radar screens at the moment,' Barris said. 'It's enormously fashionable.'

He said this was because current conditions in the German market resemble conditions found in other favourable markets in the past, such as the US market in the early 1990s. 'Investors tend to be very simple people,' he said. 'When they see something which has worked in the past, they try to identify the pattern of circumstances that led to that and then look for those patterns in other markets. That's precisely what's happening in Germany.'

Among those patterns which are currently attracting foreign investors to Germany, he identified the fact that the German economy is near the bottom but appears to be turning up. 'People are starting to see light at the end of the tunnel,' he said. 'There's a view that, from an economic perspective, investors would be buying at an appropriate point in the economic cycle.'

A closely related factor is the real estate cycle, he said. 'In a European or global context, the real estate market in Germany is still remarkably inexpensive,' he commented. 'International investors find it extraordinary that you can still buy residential property in Berlin, a European capital, for half the price you would pay in, say, Ljubljana.'

Another important factor in his opinion is the fact that there is a change in the source of capital in the market place. Open-ended funds are disinvesting, he said, which creates a 'vacuum of capital'.

Germany is also attractive because of the fact that real estate is in the hands of weak owners, and the existence of what Barris called 'genuine financial distress'. 'That is appealing because then you have keen sellers,' he said. He also mentioned Germany's large pools of assets in contrast to central and eastern Europe, and the upcoming introduction of G-REITs, which will provide investors with an exit strategy, as other attractive patterns.

However he cautioned that the current situation in Germany differs in one important respect from past favourable markets. 'The difference is that so many international investors are very interested in Germany now,' he said. 'In other cases in the past there were only a small number of investors.'

'The amount of capital pointed at Germany is enormous,' he said. 'In certain cases people are overpaying. Investors have to be selective.'