Expectations are very low for the German real estate market next year and industry professionals pin their hopes on 2025 and beyond, experts agreed at Real Asset Media’s European Outlook 2024: Focus on Germany briefing, which took place recently in Frankfurt, hosted by CMS.
“We don’t expect many transactions in 2024, because we’ll see the knock-on effects of higher interest rates,” said Markus Beran, head of origination, international investors, Berlin Hyp. “Real estate always lags behind the real economy. But we have to be realistic: we had a long good cycle and now we’ll have a few difficult years, so we need to do our homework before we can think about making profits.”
‘Wait and see’ is likely to be the name of the game as most investors will focus on their existing assets rather than looking for opportunities.
“Survive to ‘25 is the general feeling in the market, so ’24 is likely to be a year of holding on,” said Thomas Veith, partner, global real estate leader, PwC. “The hope is that positivity will return towards the end of the year. There is so much to keep us busy, from new regulations to digitisation and technological innovation, without us having to think about new deals.”
Many investors had become complacent in a favourable ‘lower for longer’ environment and some came to believe it could be ‘lower forever’. So the rapid rise in interest rates was a shock to the system.
“Like the proverbial frog boiling to death, investors didn’t detect the dangers of declining interest rates,” said Barbara Lewandowicz, founder, Molveno Investment Partners. “Now there’s a global belief interest rates will stay higher for longer, even if they decline a little next year, so there needs to be a shift in our investment strategy. We need to open our books and think about our capital and asset allocation.”
The surge in interest rates and the decline in transactions have affected all European countries, but Germany has been hit more than others. The engine of European growth has been spluttering, and this has hit sentiment as well as volumes.
“Germany is not in a positive state of mind now,” said Marcus Cieleback, chief urban economist, Patrizia. ”It is a challenging environment, and overall there’s a more negative outlook than in neighbouring France.”
As many foreign investors have left, domestic players are in survival mode, bracing themselves for a difficult year ahead.
“There will be no big transactions in 2024, it will be wait and see,” said Philipp Schönnenbeck, partner, CMS Hasche Sigle. “Our clients will focus on the stock they own, on asset management and on some restructuring.”
The important thing is maintaining a sense of optimism about the future.
“Germany is at risk of losing its safe haven status, but we need to keep a positive outlook, because every crisis brings opportunities,” said Veith. “The motto is survive to ’25, nichts (nothing) in ’26 and heaven in 2027.”