Germany’s Office Buildings Encountered Some Obstacles Last Year

Germany’s Office Buildings Encountered Some Obstacles Last Year

22 days ago2 mins

What’s going on here?

Germany’s market for office buildings suffered from one too many obstacles last year, posting its sharpest drop on record.

What does this mean?

Home isn’t just where the heart is: it’s where the laundry machine, sofa, and free lunches are. But while you can’t blame workers for steering clear of fluorescent lights and repetitive conversations when they can, the lasting shift to home-working has left a lot of office blocks abandoned. Combine that with higher interest rates, which make it more expensive for purchasers to borrow cash, and the commercial real estate industry has been forced to slash prices lower and lower. Nowhere is that more evident than in Germany, where office prices slumped by 13% last quarter compared to a year ago. That means they fell 10% during 2023 – the most since records began in 2003. Investment bank Jefferies reckons that’s just the start, predicting that German offices will eventually shed 40% of their value from their previous heights.

German office prices slump

Why should I care?

For markets: Don’t bank on it.

German banks have kitted out the industry with plenty of loans over the years – money that’s now looking a lot harder to pay back. Deutsche Pfandbriefbank even called this the “greatest real estate crisis since the financial crisis” last week, announcing that it’s putting more cash aside as cover in case borrowers can’t make good on their loans. Investors heeded the warning, pushing the German bank’s stock and bond prices lower – along with those of a few major competitors.

PBB credit provisions

The bigger picture: Germany can’t catch a break.

Germany’s economy, usually the pride of Europe, shrunk in every quarter except one last year. Analysts aren’t hoping for much better this year, either, predicting that the economy will stay the same or shrink even more. Commerzbank, for example, has already penciled in a 0.3% decline, and a full-on real estate crisis would make that look practically optimistic.



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