German real estate market passes corona stress test: The buyers have not turned away

After the long upward trend, the German real estate market has survived the first stress test. The low level of infection has had a positive effect on the real estate market, even though retailers and hotels were hit hard by the lockdown. The housing market has come through four months of pandemic best. Buyer demand has proved robust. Stable real estate lending in April and May underscores the continued interest in home ownership. Purchase prices maintained their high level from April to June despite increased unemployment and the job cuts announced by many companies. The low interest rates are helping here, as buying a home is often cheaper than renting. In addition, residential letting has proved to be crisis-proof. The rental arrears feared after the outbreak of the pandemic have largely failed to materialise. Supply-side rents even increased slightly in the first half of the year.

Although investments in commercial property fell in the second quarter, the decline was limited. Due to the yield advantage, investors apparently have no choice but to invest in the real estate market. However, the outlook for commercial real estate has clouded over. The retail sector in particular is feeling the effects of this. Customer frequency was able to recover after the lockdown, but the loss in sales cannot be made up. The HDE expects a minus in inner-city retail of up to 40 billion euros. Added to this is the increasingly successful online trade. The situation looks better for hotels. The people of Corona have not let the joy of travel be spoiled. The demand for office space is being curbed by the recession and in future probably also by home offices. Many companies want to permanently expand the range of flexible working options. Currently, the best prospects are offered by logistics properties that benefit from the e-commerce boom.

In any case, the times of sharply rising rents and purchase prices are over. Instead, the real estate market is facing some challenges. For example, alternative uses must be found for obsolete retail space, but this should be possible for inner city locations. The future demand for office space must be sounded out. And hotels may have to manage with fewer business travellers in the long term. In the housing market, ageing could noticeably change the demand pattern. It is also unclear how the expensive energy-efficient renovation of many millions of apartments is to be financed.

Thanks to favourable financing conditions and the yield advantage, real estate remains attractive - if the long-term perspective is right. The German real estate market also benefits from its reputation as a safe investment haven. Contemporary properties in good locations in particular have good prospects and are in demand even if the demand for space is declining. But if the asset class, location or quality are not right, the chances are worse. In a prospering environment, it is usually still possible to find buyers or tenants. This is likely to become more difficult now.

Prices for houses and apartments remain stable despite lockdown and recession
Purchase prices for residential properties in Euro.


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