2023-04-17 18:04:39
Nfter many years of strong growth, the market for German commercial real estate has almost come to a standstill. This emerges from the findings of large brokerage houses on investments in offices, shops and warehouses. According to BNP Paribas Real Estate, only commercial real estate was bought for 5.2 billion euros in the first quarter of 2023. This corresponded to a decline of 74 percent compared to the same period of the previous year. Even in a long-term comparison, this was an extremely low transaction volume: according to BNP, it was 56.5 percent below the ten-year average. The market thus fell back to the level of the years 2010 to 2012, when demand for commercial real estate was still depressed by the consequences of the international financial market crisis.
The traditionally largest part of the commercial real estate sector, the office market, was particularly hard hit. According to Savills, the transaction volume fell by 90 percent in the first quarter to just over one billion euros. The market for retail space fared somewhat better, with a relatively mild decline of 34 percent to EUR 1.7 billion. This means that investors spent more on retail properties than on offices for the first time in a long time. In third place was the market for industrial and logistics real estate with a transaction volume of 700 million euros, which, like the office market, also experienced a severe setback of 83 percent.
The setback on the office market is closely related to what is happening in Frankfurt. There, the office towers traditionally play the decisive role in the commercial real estate market – if there is little activity there, the entire commercial real estate market collapses. This is reflected in the current figures from Savills: In the first quarter, commercial investors only spent 90 million euros on Frankfurt real estate. That corresponded to a minus of 96 percent. The Main metropolis was the negative leader in Germany, followed by Hamburg, Cologne and Düsseldorf, some of which also had significant declines, but not as severe as in Frankfurt.
The reasons for the sharp downturn
The brokerage houses are largely in agreement about the reasons for the strong downturn. Colliers boss Matthias Leube, for example, says: “The mixture of geopolitical tensions, economic weakness and high inflation with the resulting rise in interest rates and financing costs are currently slowing down market activity noticeably.” This brake apparently also includes the fact that buyers and sellers have very different price expectations . Although rising interest rates are generally depressing real estate prices, this is also depressing the willingness to sell on the part of portfolio holders who are hoping for a recovery in price levels. The fact that the office market is currently in a state of upheaval is contributing to the uncertainty. According to a study by the German Economic Institute (IW), the pandemic has meant that the office is now being used as a meeting place more than in the past. “Accordingly, competition for innovative concepts is now raging,” reports IW real estate specialist Michael Voigtländer. Offices with older fittings and properties in poorer locations have long been empty.
In this situation characterized by uncertainty, the brokerage houses do not take it easy with an outlook. Fabian Klein from CBRE, for example, openly admits: “It is currently very difficult to make valid statements about the transaction volume.” However, CBRE expects that the price expectations of buyers and sellers will increasingly adjust. JLL also qualifies that the uncertainty about the development of the economy and interest rates is currently the biggest obstacle. After all, rising rents could create new entry opportunities for investors.
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