Berlin Hyp survey: recovery in Germany depends on rate cuts

The hope of recovery in the real estate sector hinges on interest rates cuts this year: this is what emerges from Trendbarometer, Berlin Hyp’s annual survey of hundreds of RE professionals in Germany, which was published yesterday.

Source: Trendbarometer, Berlin Hyp 2024

The survey shows a decidedly cautious attitude, as uncertainty remains and professionals are less willing to make investments and provide financing.

“The results of our latest Trendbarometer clearly reflect the rather muted expectations in the sector with regard to the new year”, said Sascha Klaus, Chair of the Board of Management, Berlin Hyp AG. “The mood seems to remain very cautious and there’s hope for some type of stimulus from outside the industry.”

However, Government support measures and possible interest rate reductions are certainly important, “but they’re not a cure-all”, said Klaus. “If the market is to regain momentum, the available opportunities will have to be systematically seized. In 2024, we therefore need to move on from neutral to at least back to first gear.”

The responses given show the dilemma that the sector faces: on the one hand, the sector is pinning its hopes to a large extent on external circumstances or decisions over which it has only limited influence. On the other hand, the possibilities the sector does have to influence the situation are barely taken into account.

The respondents regarded the externally determined factors of “Interest rate levels” (71%), “underlying political conditions” (56%) and “construction costs” (54%) to be most important for the real estate sector in 2024. A far lower number of respondents said they believed “shortage of skilled labour” (22%) and “digitalisation” (4%) were the most important issues.

Hopes are resting on interest rate reductions, as shown by the answer to the question in the survey “What gives reason for optimism in 2024”: 74% of respondents cited possible interest rate reductions as a key factor giving them cause for optimism regarding the development of the real estate sector in 2024.

When it comes to asset classes, around 30% of respondents believe there will be opportunities in residential, logistics and student housing, while one in two professionals is convinced that the situation for offices and retail will deteriorate.

Most professionals expect transaction volume stagnation to continue. A majority of respondents (56%) expect transaction volume to amount to somewhere between €30 billion and €40 billion in 2024, in line with the 2023 figure.

Activity will remain muted in 2024, as most respondents believe that both companies and banks will remain cautious over the next 24 months. As a result, 41% of the respondents described their company’s willingness to make investments as “balanced”, 36% as “limited” and 4% as “very limited”. This might be due to a lack of available funds for investment.

The situation is even clearer with regard to the willingness to provide financing. Here, 19% of the commercial real estate financiers described this willingness as “unchanged”, while 53% said it “will be limited” and 4% said it “will be much more limited”. Banks have been forced to adopt more restrictive lending policies as of late and demand a higher equity contribution from their borrowers, but Klaus said that as far as Berlin Hyp is concerned, “the willingness to provide financing exists, as after all, it’s the foundation of our business.”

Many respondents (38%) believe the German market is becoming less attractive compared to the rest of Europe and 36% think it is unchanged compared to 2023, possibly due to the economic slowdown.