Commercial real estate prices are falling like a stone – "Trend reversal not yet foreseeable"

Berlin (Reuters) – Commercial property prices in Germany fell at a record pace before the turn of the year.

In the final quarter of 2023, they fell by 12.1 percent compared to the same quarter of the previous year, as shown by the real estate price index from the Association of German Pfandbrief Banks (vdp) presented on Monday. Compared to the third quarter of 2023, there was a decrease of 4.9 percent. Major price declines in commercial real estate have not previously been measured in the vdp index, which has been collected quarterly since 2010. According to vdp, since the second quarter of 2022, when prices reached their previous high, they have fallen by 16.5 percent. Between 2010 and 2022 they had previously increased in price by around 55 percent.

Residential property prices fell by 6.1 percent in the fourth quarter of 2023 – compared to the final quarter of 2022. According to the vdp, they have fallen by a total of 8.4 percent in this country since their peak in the second quarter of 2022. Previously, they had more than doubled within twelve years. “A turnaround in real estate prices is not yet foreseeable. 2024 will remain difficult for the time being,” warned vdp managing director Jens Tolckmitt.

“CHALLENGING REAL ESTATE YEAR 2024”

Prices on the residential property market cannot be expected to stabilize until next summer, and commercial property prices cannot be expected to stabilize before the end of this year, Tolckmitt predicted. “All in all, according to current knowledge, the real estate year 2024 is likely to be challenging, but the downward trends that have existed since mid-2022 should noticeably ease over the course of this year.” This is indicated by the stabilization of interest rates, the rising yields and the ongoing rent increases, which are making real estate investments more attractive again.

Living space continues to be a very scarce commodity in Germany, especially in metropolitan areas. “In view of the declining housing completions, we must expect that the housing shortage will continue to increase in the next few years,” said Tolckmitt. The result would be further rising rents.

The vdp index is based on the evaluation of “real” real estate transaction data from more than 700 credit institutions. It therefore covers price developments on the entire German market for residential and commercial real estate quarter after quarter.

(Report by Reinhard Becker, edited by Sabine Ehrhardt. If you have any questions, please contact our editorial team at [email protected] (for politics and economics) or [email protected] (for companies and markets).)

ttn-28