Germany is facing its worst economic crisis in a decade as international investors are skirting German property deals. Foreign buyers accounted for 35% of purchases of commercial real estate in the first quarter, data from BNP Paribas Real Estate shows. This is less than in any year since 2013 and comes against the backdrop of a 70% plunge in sales volumes from levels before the 2020-2021 pandemic.
The figures raise a debate about whether Germany is once again “the sick man of Europe.” This was a label it was given in the late 1990s, where it struggled with economic stagnation and high unemployment. Germany worked to shed itself from that label. For years, low interest rates, cheap energy and a strong economy sustained a boom across the German property sector. This contributes 730 billion euro ($793.51 billion) a year to the nation’s economy, or roughly a fifth of Germany’s output.
That boom ended when rampant inflation forced the European Central Bank to swiftly raise borrowing costs. Real-estate financing dried up, deals fizzled, projects stalled, major developers went bust, and some banks teetered. The industry called on Berlin to intervene.
Commercial property prices tumbled another 9.6% in the first three months of 2024 compared with a year earlier after a 10.2% drop for 2023 – according to the VDP banking association, predicting more pain ahead.
New problem factors have now emerged. Firstly, the country’s bid to wean itself away from Russian energy will come at an economic cost. Secondly, the country’s bureaucracy is threatening economic growth. Thirdly, far-right politicians are gaining in the polls. Should they win protectionist policies will scare away foreign investors. This is needed by Germany.
Kurt Zech, one of Germany’s biggest developers, warns the market will keep struggling until foreign investors return. “The Americans have to come back,” he said.
(REUTERS)
