German real estate deals down by half in Q4: BNP

GERMANY’S real estate market took a deep hit in the fourth quarter, as investors shied away from deals on the back of soaring financing costs.

Total investments in the country’s commercial property sector reached only 9.9 billion euros (S$14 billion) in the last three months of 2022. This was a decline of 50 per cent compared with the five-year average for the period, as indicated by a report by BNP Paribas’ real estate unit on Monday (Jan 9). The development is largely due to soaring interest rates, a weakening economy and record inflation, it said. 

The worsening environment meant “that many large transactions that already were at marketing stage did not take place”, as rising financing costs drove a wedge between pricing expectations of buyers and sellers, said Marcus Zorn, chief executive officer of BNP Paribas Real Estate Germany. The trend would likely continue during the first half of 2023, but would reverse in the second half, he said. 

A similar dynamic is taking place in the market for residential real estate, where the deal volume for the full year collapsed by 74 per cent compared with 2021, BNP said in a separate statement. 

Europe’s real estate firms are grappling with a plunge in valuations and dealmaking after the European Central Bank and other monetary policymakers rapidly increased interest rates in 2022, bringing to a halt a boom in asset prices that had lasted for more than a decade. BLOOMBERG