Intelligent Investment

Germany Real Estate Market Outlook 2024

January 30, 2024

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Real Estate Market Outlook 2024 (EN)

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The year 2023 was a very challenging one for the German economy. A range of different factors caused economic growth to decline for the ninth time in the history of the Federal Republic of Germany. Companies and private households suffered principally from the effects of high inflation and the sharp rate hike cycle. Momentum on the real estate investment markets slowed against the backdrop of the increase in financing costs and partly higher yields in alternative asset classes. Players on the real estate markets also needed to settle on a new equilibrium price in the market and, although  this process is already far advanced, it is not yet complete. What can we expect in   2024? Which asset classes will investors focus on? Which sectors will offer attractive investment opportunities again in the new year? And how can sustainably successful work environments and cities worth living in be created by transforming real estate to suit occupiers?

From a macroeconomic standpoint, 2024, will be characterized more by slower momentum, although a gradual recovery can be expected to set in in mid-year. Economic risks remain tilted to the downside for the time being and pertain mainly to geopolitical tensions and intransigent core inflation. The key rates appear to have peaked, and the European Central bank left them unchanged in its meeting at the start of the year for the third time in a row, while still adopting a cautious stance with regard to possible, rapid interest rate cuts. Inflation will continue to trend down over the course of the year, also for reason of still modest growth in global demand. Long-term interest rates began to fall in October, and further moderate declines have been forecast for 2024.

Against this backdrop, we see an environment for real estate investments that will become brighter and more predictable. The value of real estate is likely to drop to a low point in 2024, and a more stable market environment will gradually ensure a convergence in buyer and seller price expectations. We expect growth in the investment volume of around 20% compared with 2023.

The occupier markets are showing signs of ongoing polarization in terms of location, the quality of the property and tenant creditworthiness. The cyclical turning point has come and gone in the office sector, and structural change will give rise to fresh opportunities on the leasing market. As far as retail is concerned, top locations are enjoying strong demand from higher footfall, while take-up in the logistics sector is generated by demand from the industrial  sector on the back of further supply chain restructuring. The sustained high  and increasing demand for housing is set to drive rents up significantly across the board against the backdrop of the slump in construction activity, particularly in the urban centers. Imbalances between supply and demand will also manifest in other sectors such as hotels, healthcare and senior living real estate, as well as data centers.

Ultimately, sustainability will exert a growing influence on all real estate decisions in all sectors. The various market participants will increasingly endeavor to align their ESG agendas, and the search for better and more reliable data on the costs and benefits of sustainability decisions is set to accelerate.