Due to increased interest rates and high costs, many companies fear that the real estate market is entering a downturn. The sentiment index for the industry went negative for the first time, especially in the residential segment. The mood is currently worse than during the corona pandemic.
The mood among real estate experts has shifted in view of the sharp rise in interest rates, high construction costs and the weak economy. According to a report by the German Economic Institute (IW) for the ZIA industry association, which was published on Tuesday, many companies feared that the real estate market would turn. “There is evidence that the market is now entering a downturn, ushering in a new real estate cycle,” the authors wrote.
The real estate sentiment index calculated by the IW fell from 30.7 points in the first quarter to minus 5.5 points for the second quarter and thus fell into the negative for the first time since it was published in 2014. “This means that the mood in the executive floors of German real estate companies is significantly worse than during the corona pandemic,” it said. Managers and executives from around 1,200 real estate companies were surveyed, of which a good 400 companies regularly take part in the study. The “Handelsblatt” had previously reported.
In the residential segment, the real estate climate fell particularly low. The main topic is the increased building interest, which makes apartments and houses less affordable for private households. “Lower affordability could lead to a sustained drop in prices and demand,” the IW said. FMH-Finanzberatung has calculated that the average effective interest rate for ten-year financing recently rose above the 3 percent mark for the first time since 2012.
The sentiment index also went down for project developers, in the retail real estate sector and for office real estate. After the office market had come through the pandemic robustly, many companies feared significantly less demand and falling prices and rents. According to the report, there is also bad news for tenants: 80 percent of the housing companies surveyed expect rents to rise for their properties. The main reason is the high inflation.
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