Covid-19 2020 Mid-Year Market Recap: The German Perspective

03 July, 2020

By Philip Gleser, Dr. Gleser & Dalhoefer (Germany)

In the first half of 2020, the investment market in Germany was under the influence of the Corona crisis. While large transactions still dominated the market in the first quarter and the transaction volume increased once again compared to 2019, the second quarter was characterised by restraint. According to Real Capital Analytics (RCA), the transaction volume was around € 5 billion in the first quarter, representing an increase of approximately 5% compared to the previous year.

By contrast, the real estate climate deteriorated signficantly in the second quarter. According to bulwiengesa, an expert survey revealed a decline of around 37% in the German Hypo Real Estate Index (Deutscher Hypo Immobilienindex) in April 2020. This is not surprising and reflects the uncertainty in the market.

However, a strong differentiation must be made for asset classes. Retail and hotel properties have been most affected. An increase in insolvencies is expected for many commercial transactions from the second half of the year onwards. This will certainly have an impact on future rent levels and yields. In some cases rents have been deferred, suspended or renegotiated. The new rentals are usually at a lower level but with new contract periods.

The situation is similar for hotel properties. This asset class has been particularly hard hit by the shutdown. City hotels in particular, whose sales depend on tourists, conventions or trade fairs, still face an incalculable risk. It is not possible to predict right now when the occupancy rates will match year ago levels. This uncertainty will certainly cause initial yields to rise and the volume of transactions to fall.

Declines are also expected in the office segment, but at a slightly lower level than in the prior two asset classes. A rethink is expected in the world of work. Home office and teleconferencing will certainly gain in importance. It can be observed that re-letting activities have been postponed and the development of rents is stagnating. Nevertheless, the office segment is expected to generate the highest transaction volume of all asset classes.

In contrast, a stable trend has been observed in the logistics market. Neither the price level nor the rent level have fallen in recent months. However, a decline in transaction volume is expected here as well.

By contrast, the market for multi-family homes and residential and commercial properties is proving to be extremely robust. Here, the volume of transactions has declined too, but with stable yields for multi-family homes and a slight increase for residential and commercial properties.

The effects of the Corona crisis cannot yet be concludingly predicted. Various monetary packages of measures and legislative amendments have been enacted by the government. The extent to which these measures will stabilize, or even stimulate, the market will only become clear towards the end of the year.

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