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15 Feb, 2024 05:58

German commercial property market tumbling – report

An index run by the banking association VDP that tracks prices showed its largest ever drop in 2023
German commercial property market tumbling – report

German commercial property prices in the final quarter of 2023 plummeted by 12.1% in the largest year-on-year decline registered by a price index run by the banking association VDP, according to a press release issued by the organization this week.

Prices were down by 4.9% from the third quarter, the data showed, which is also the largest quarter-on-quarter price drop the index has registered in the country’s commercial property sector. For the full year 2023, commercial real estate prices plunged 10.2%.

“2023 was a difficult year for the property sector, as we can see from price developments. There was no sign of recovery in the fourth quarter either,” the CEO of VDP, Jens Tolckmitt, said, adding that “the situation will remain difficult for the time being in 2024.” 

Tolckmitt pointed out that the property crisis is affecting commercial real estate more than the residential segment. The spotlight is currently on office properties, he said, where returns have thus far generally failed to meet investors’ expectations. “On top of this, demand for offices remains subdued due to the uncertain economic growth in Germany and the still unclear impact of the working from home trend on office space. So, prices continue to depress,” concluded Tolckmitt.

German property values have seen their steepest decline in more than two decades. Construction has been severely hit by the European Central Bank’s tightening of monetary policy in response to raging inflation in the EU, and by uncertainty over new energy regulations. 

Germany-based real estate multinational Vonovia has warned that the country’s construction sector, which makes up 12% of Germany’s GDP and employs a million workers, is on the brink of collapse, putting the overall economy in jeopardy. The sector had enjoyed a prolonged boom in the era of ultra-low borrowing costs.

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