Berlin, Frankfort How will the housing market develop? How is the situation on the office market? And what happens if the new government actually manages to build 400,000 new homes a year?
“The renewed increases and the enormous level of purchase prices are both surprising and quite frightening,” says the report commissioned by the Central Association of the Real Estate Industry (ZIA). “Various warnings have been issued from various quarters, including here in the past spring report, which must be repeated with even greater emphasis.”
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Industry observers who expect the bubble to burst argue that rising interest rates could lead to poorer financing conditions and thus falling demand for real estate. But the ZIA does not expect the boom to come to an abrupt end. “The real estate industry will not be jolted,” said ZIA President Andreas Mattner.
According to the calculations of the real estate experts, the purchase prices for condominiums in 2021 in the major cities have risen again by ten to 15 percent. The nationwide average price per square meter is 3140 euros. Because rents rose less sharply at the same time, investors had to make cutbacks when it came to yields: in the major cities, the median gross initial yield was 2.2 percent to three percent.
But the real estate experts warn against assuming constant growth in the metropolises – and the associated increase in demand for living space: Reasons for their skepticism are lower immigration, emigration to the surrounding areas and brisk construction activity – albeit linked to the observation that the wrong Apartments are being built, so that families in particular are moving away from the big cities.
In the discussion about empty housing markets, it is often claimed that the shortage of small apartments is particularly great. “This sounds plausible, but it is wrong,” says the report. “In recent years, it has increasingly been built around the needs of the families”. The proportion of newly built apartments with four or more rooms (plus bathroom and hallway, but including a kitchen) has more than halved in the metropolises from around 60 to 80 percent in the 2000s to 20 to 30 percent most recently.
The decline in even larger apartments is even clearer. The consequences are “dramatic”: significantly more than 40 percent of all low-income four-person tenant households in large cities live in cramped spaces of less than 80 square meters, and almost 20 percent even less than 65 square meters.
The conclusion of the real estate experts is therefore: “Currently, the construction of new apartments – especially in the case of new apartment buildings in the big cities – completely ignores the needs of families. If there is no trend reversal here, we can expect a further increase in family migration and, as a result, an increase in single-family house construction outside of the big cities.”
Second: The office market will not emerge from the corona crisis as a loser
When the corona crisis began, a number of experts were certain: the lives of millions of people will change in the long term – and that will be at the expense of office property owners. After all, who needs so much office space when the majority of employees spend at least part of their working hours at home? Especially since company bosses could sense the opportunity to save money by renting smaller premises. However, according to the report, the swan song for the office as a place of work has not materialized from the point of view of investors and users.
Office real estate remained the most traded asset class among commercial real estate. The capital invested in office properties in Germany in 2021 was around 27.8 billion euros (2020: 25.1 billion) or 46 percent of the total volume.
The Wise Men are convinced that the demand for top office properties will remain at a high level. “Following the discussion about saving space, it has now become clear that the office will remain the focus of work organization for most companies.”
The news that in 2021 a real estate investor paid more than one billion euros for a building for the first time can also serve as evidence of this: Allianz and partners bought the “T1” in Frankfurt for 1.4 billion euros, which will probably be the third highest after completion Office tower in Germany.
Nevertheless, office landlords would have to rethink their previous space concepts, warn the real estate experts. And at the latest in the re-letting, not insignificant investments should often be made.
Office properties are still the most traded asset class among commercial properties.
(Photo: imago stock&people)
The persistently high demand has disadvantages for investors: The prime yield for office properties in all major cities, the so-called A locations, fell again significantly, especially in the last quarter, and this is unlikely to change: “We expect a further slight decline in 2022 the prime yield of up to ten basis points,” says the report.
In connection with the persistently high construction costs and increasing ecological requirements, the experts also expect rising rents in 2022. Corrections are only likely in secondary locations, which were in demand in the past due to a lack of other suitable space.
Third: The real estate industry will soon lack skilled workers across the board
Despite the pandemic: The construction industry is considered the pillar of the economy; Workers are in demand, but are increasingly lacking. While Secretary of State for Construction Sören Bartol (SPD) spoke of a shortage of skilled workers on Tuesday, the problem is already much greater, according to the spring report of the real estate experts. “We are running into a general shortage of workers, it’s not just about skilled workers,” said economist Lars P. Feld at the Quo Vadis real estate congress in Berlin.
Feld, soon to be personal advisor to Federal Finance Minister Christian Lindner (FDP), had analyzed the overall economic development as part of the report. “Be prepared that you will increasingly have to take care of workers,” Feld said, addressing the real estate industry. “We also regularly see bottlenecks among the unqualified.”
Feld is convinced that in addition to demographic change, ongoing digitization will exacerbate the shortage. The corona pandemic led to a surge in digitization that revealed problems in various areas. Various further training formats should therefore be encouraged and could be anchored as an integral part of the (training) system, according to the report.
According to the Central Association of the German Construction Industry (ZDB), the construction industry has increased the number of its employees from 709,000 to almost 870,000 in the past ten years – and is calling for further opportunities to employ people from non-EU countries. In the next ten years, it is said that 150,000 employees will leave the industry due to old age. The demand for labor could no longer be covered with domestic employees for a long time.
The labor market situation is disastrous, and not only in view of the 400,000 apartments that the new government has promised to build. In order to promote climate protection in the building stock, the government wants to force renovations, heating systems have to be replaced.
Martin Sabel, Managing Director of the Federal Association of Heat Pumps (BWP), demands incentives for tradesmen, planners and consultants to deal more intensively with future-proof heating systems. New job descriptions should also be developed so that specialists can move up.
More: These metropolises are prepared for the future – and attractive for real estate investors