It has always looked good for real estate investors in recent years. Germany experienced a long-lasting boom. As in almost all other areas, the Corona crisis has now also changed the real estate market. The actual consequences of the virus will only become apparent when the pandemic is completely over, but new, future winners can already be identified from the current imbalance.
The rapid spread of the corona virus has led to striking cuts in society and the economy. In a very short time, major changes came to the population, which nobody would have thought possible before. The corona crisis could therefore even be perceived as a small turning point in the present. What used to be changed suddenly. There was a state before Corona and there will be a new one afterwards. Such a development can also be observed on the German real estate market.
The real estate market in year one before Corona
According to a report by the Reuters news agency, there were more transactions than ever in the German real estate market in the first quarter of 2020. The high, which had been on an ever steeper course for years, continued until shortly before the crisis. It was a happy time for investors. Prices and rents regularly set new records. The demand was high – the supply was scarce. In addition, the cheap central bank money ensured very favorable credit terms on the buyer side. Even though saturation was already emerging in some areas, as prices gradually ran away from rents and yields melted, the desire to buy did not stop. Real estate owners were simply the winners of the boom. That applied to both residential properties and the commercial sector.
The previous structure is changing
The force of nature of the corona virus has stalled the continuation of the years of development in one fell swoop. The trend is suddenly over. A survey by the auditing firm Ernst & Young (EY) has shown that the expectations of market players have changed completely. While only 16 percent forecast a decline in investment volume at the end of 2019, 76 percent of real estate companies now expect falling transactions. “The current corona crisis could have far-reaching consequences for the real estate industry,” says Christian Schulz-Wulkow, head of the real estate sector at EY for the DACH region.
Residential and logistics companies still get away quite well. The effects on office and retail real estate will probably be considerably more severe. Many businesses had to close during the crisis. Now the income to pay the rent is missing. This leads to pessimistic future prospects among investors. 83 percent of EY respondents estimate that prices in this area will fall. In addition, gastronomy and the hotel sector are other major problem children. The protective measures against the spread of the pandemic hit these two lines of business with full severity. The consequences literally turn the market upside down.
The survivors will be the winners
Identifying the catering, hotel and retail businesses as future winners of the crisis appears initially to be grotesque. After all, the majority of these market participants are currently struggling for their existence. But as tragic as it may be, the dying of many businesses is likely to give the rest of the power in the real estate market. State aid and KfW quick loans are to drag the troubled actors through the crisis. But in the opinion of the website financial market world, the bankruptcy of many companies is only delayed. Sooner or later, the borrowers will have to give up overindebted, because for many the corona crisis was probably just the last stab in the stab that sealed their fate. Countless stores were already threatened in their existence by online trading and the changing shopping behavior.
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The consequence of the corona crisis is therefore likely to be a not inconsiderable vacancy in the commercial sector. Karsten Jungk, managing director of the real estate consultant Wüest Partner, told Reuters that office rentals also saw a decline before the crisis. The tenants, who survive the difficult period of foreclosure, should have a completely new position of power on the real estate market. In future negotiations, you can probably choose between several offers and lower prices. The falling demand will drop rents anyway. Henceforth, the building owners must look for prospective customers. Losing an existing tenant could be fatal. After the pandemic, investors are likely to have lost their dominant position on the real estate market.
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