German property deals plunge to lowest level in over a decade

GERMANY’S commercial real estate deals dropped to a 13-year low during the first quarter as buyers and sellers struggle to adapt to the massive increase in financing costs.

Transaction volumes between January and March were 5.1 billion euros (S$7.4 billion), less than half the historic average and the lowest level since 2010, according to a report from BNP Paribas Real Estate. Residential deals also dropped precipitously, the company said in a separate report.

The country’s property sector has been hit hard by the rapid pace of interest rate increases from the European Central Bank last year, which have led to a dramatic increase in financing costs. That’s created a pricing mismatch in the property market, with potential sellers arguing that rapid inflation will continue to drive up rental income and thus support property values while interested buyers point to financing costs to support lower valuations.

“The German real estate investment market is in a very challenging phase,” BNP Paribas Real Estate Germany head Marcus Zorn said in the report. The development is a “logical consequence of the high uncertainty” currently prevailing in the property industry, he said. BLOOMBERG