The real estate crisis in Germany is a complex issue that encompasses many factors. According to a study conducted by the Association of German Pfandbrief Banks (VDP) in the third quarter of 2023, residential properties fell in price by an average of 1.7% compared to the second quarter and by 6.3% compared to the same period last year. The fall in prices is therefore continuing. The main reason for the fall in prices is the sharp rise in interest rates, which is making loans more expensive. As a result, demand for construction financing remains low.
Prices for commercial properties were also affected. At 10.6%, office properties fell more sharply than retail properties (-9.3%) for the first time since 2009. The trend towards working from home and stricter energy regulations are weighing on the office markets. Retail properties are also suffering from the trend towards online retail and consumer restraint in inflation.
The seven largest cities in Germany, where housing is particularly scarce, recorded a price decline of 1.3% compared to the previous quarter and 5.7% compared to the same period last year. Within the space of a year, the sharpest fall in prices was recorded in Frankfurt (9.1%) and the smallest in Berlin (4.7%). Düsseldorf, Hamburg, Cologne, Munich and Stuttgart were in a corridor between minus 5.1% and minus 6.8%.
The crisis is also having an impact on project developers. Several project developers have now filed for insolvency and experts are warning of a comprehensive market shakeout by the end of 2024.
The rental market, on the other hand, remains tense. In the third quarter, new contract rents rose by 5.8% within a year. The growing housing shortage and the associated excess demand will continue to be reflected in rising rents.
