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Boom broken:
The real estate market is weakening due to the massive increase in construction costs, high inflation and, above all, rising interest rates
Photo: Gaby Wojciech / Westend61 / IMAGO
According to a study by the consulting firm EY, the real estate investment market in Germany, which has been spoiled by growth for years, is facing further declines this year after a slump in 2022.
"The real estate market is upside down," said
Florian Schwalm
, Managing Partner at EY Real Estate, on Thursday.
The real estate investment market shrank by more than 40 percent last year to a total investment volume of around 67 billion euros, roughly reaching the level of 2016.
Almost 80 percent of the investors surveyed as part of an EY study now expect the transaction volume to continue to fall this year.
The industry is suffering from the massive increase in construction costs, high inflation and, above all, rising interest rates.
"With Russia's attack on Ukraine and the ensuing energy crisis, inflation and the necessary interest rate hikes, we are also experiencing a turning point on the real estate market," emphasized Schwalm.
EY is now observing "not only partially frozen transaction markets, but also falling prices across most types of use and locations".
While all real estate stocks have already slipped, open-ended real estate funds are still stable.
But the downturn should soon be felt for them too.
The German real estate market, which was popular with investors in the past, has lost its attractiveness.
The proportion of respondents who rate the German real estate market as less attractive than before has increased significantly from four to 36 percent compared to the previous year.
Market participants expected falling prices for all types of use apart from logistics real estate.
However, EY does not expect a drastic slump.
dri/Reuters