Berlin Hyp: Germany’s CRE market seen as ‘less attractive’

German commercial real estate has become less attractive, according to Berlin Hyp’s latest Trendbarometer survey, conducted this month among over 400 real estate professionals and published yesterday.

The change in sentiment since the 2021 Trendbarometer is stark: when asked to assess the attractiveness of the German market compared to the rest of Europe, 35% of respondents said “less attractive”, while three years ago only 2% gave that answer.

In 2021 over half – 53% – of respondents regarded the German market as “slightly more attractive” than other European markets, while this year only 29% believe it is.

“The sector is caught between hope and fear,” said Sascha Klaus, chair of the management board, Berlin Hyp. “While some are already looking ahead again and are pleased about a slight uptick in the market, others are still very preoccupied about their own business situation. The turnaround in interest rates is providing hope broadly speaking, while the weak German economy is causing concern.”

The survey shows that among asset classes residential has the greatest potential to recover soon, a view supported by lower interest rates, the end of the price slump and a slight increase in transaction volumes. Demand for housing remains high, supply is scarce and rents are rising.

Only 23% of respondents see great opportunities in the logistics sector, despite the fact that existing de-globalisation trends are being reinforced due to new geopolitical uncertainties. The associated shortened supply chains would also increase demand for new logistics properties, as companies require more production and storage space in Germany.

The office sector continues to face challenges. According to a study by the ifo Institute and property consultants Colliers, demand for office space in A cities is expected to fall by 12% over the next few years and vacancy rates are rising.

The Berlin Hyp survey asked what has to happen for the office sector to become more attractive again and 54% answered that higher-quality properties with modern working environments would entice more employees back to the office. An answer in line with current trends, which see top rents still being achieved for high-quality and energy-efficient properties in attractive city centre locations.

In order for the office sector to spring back to life what is needed is a “revitalisation of the German economy”, according to 49% cent of those surveyed. A stronger economy would indeed have a positive impact on the real estate industry in general and the best way to achieve it, according to 62% of respondents, is by further interest rate cuts.

While Germany’s economic output is declining once again, according to the government’s own forecast, further interest rate cuts by the ECB could lend the market some momentum over the next few months.

Transaction volumes would improve if banks were more willing to provide financing, survey respondents believe: 55% said that availability of finance is “rather low” at the moment.

“We are open to new business if the general conditions are right,” said Klaus. “Location, property quality, rental status and energy efficiency are the decisive parameters for financing.”