In its latest report, Germany’s Association of German Pfandbrief Banks (vdp) revealed that commercial property prices saw a 9.6 percent decline during the first quarter of 2024. Between Q2 of 2022 and Q1 of 2024, Germany’s commercial property prices dropped by 17.2 percent. In Q1 of this year, residential property prices declined 4.3 percent year-on-year. Since the record-high prices Germany saw in the second quarter of 2022, residential property prices have fallen by 8.6 percent to date.
“The development of prices confirms our prediction that prices will continue to fall – for commercial properties more heavily than for residential properties,” stated vdp chief executive Jens Tolckmitt.
vdp’s property price index reached 174.7 points in Q1. That is 5.3 percent below the level of all property classes year-on-year and 0.3 percent below the level for the previous quarter.
Property market downswing impacts prices
The property market downswing that has persisted since mid-2022 is heavily impacting Germany’s commercial property market.
The 9.6 percent decline in Germany’s commercial property prices was made up of price corrections in the office sector, which declined 9.9 percent, and the retail sector which declined 8.9 percent. Compared to Q4 of 2023, prices in Q1 fell by 0.6 percent for offices and 1.5 percent for retail properties.
In its report, vdp revealed that rent growth under new contracts was fairly uniform in both asset classes. Year-on-year, office and retail rent increased by 2.9 percent and 3.3 percent, respectively. Quarterly, rent increased by 0.7 percent and 1.1 percent, respectively.
“There is as yet no sign of commercial property prices bottoming out. We expect commercial property prices to decline further in the coming quarters,” added Tolckmitt.
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Future oulook
Looking ahead, “the commercial property sector is still going through a phase of structural challenges”, Tolckmitt emphasized. Hence, high interest rates and refurbishment requirements according to ESG criteria are impacting both asset classes. The report states that pressure on Germany’s commercial property market will likely continue throughout 2024 and the beginning of 2025.
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