German Real Estate Market - Forecast 2023

OUTLOOK AND FORECAST FOR THE COMING YEAR

In 2021, we were way off the mark for the 2022 property market forecasts. The rapid rise in interest rates, the very strong inflation and the energy price increases were not on our radar. However, we had already correctly predicted the trends. A trend reversal in the market was already becoming apparent. At the end of 2021, there were clear signs that there were too few properties for the majority of buyer groups. We also knew that interest rates would rise. However, we were surprised by the speed of interest rate rises, inflation and energy costs.

What does not surprise us, however, is the reaction of market participants. Owners who want to sell their property are going down in price. Owners who do not want to sell are leaving the market or let it. The rents for new contracts have risen and will continue to do so, as far as this is legally possible at all. Where no rent increase is feasible, they sell or use the property themselves. Only in rare cases landlords will let under the current rental regime their old and unrenovated apartments. Average market rents are 16-25€ per sqm, capped rents are around 7-9€ per sqm. Combined with high construction costs and the ever-increasing requirements for new housing, fewer and fewer properties will come onto the market for rent or purchase.

The demand pressure for housing will become even greater than it already is.

WHAT DOES THIS MEAN FOR BUYERS OR SELLERS OF REAL ESTATE IN 2023?

The good news is that the worst is behind us. Interest rates, inflation or energy costs will not rise again as sharply as they did in 2022.

The bad news is that not all market participants have drawn the consequences yet. Overall, we will see significantly fewer transactions in 2023 than in previous years. A significant decline in real estate sales could already be observed from summer 2022 onwards.

This means:

• There will be fewer sellers of new construction properties.
• There will be fewer offers to buy private residential real estate.
• The number of financing intermediaries, housing intermediaries and other mediators will decrease.
• Longer marketing phases and longer review processes are to be expected.

But this also means:

• We will see new tax advantages for landlords and homeowners, with or without energy renovations.
• We will realise considerable price differences between energetically sustainable and non-renovated properties in comparable locations: new opportunities will arise for buyers.
• Equity will become even more important. Seller loans, creative finance options, etc. are coming back.
• Many land banking investors, project speculators and property traders who do not deliver added value will leave the market.
• Innovations will be more in demand, both for construction, bureaucracy or market participants.
• The pressure to find good housing will increase. This will be accompanied by compromises in terms of size and location of the property. That is a good thing. Because we are coming down from unrealistically high expectations.
• Work will become more worthwhile again. Those who have saved up, can do their own crafts and are industrious will be rewarded.
• Money is worth something again. Despite inflation, cash is now king. That was not the case for many years.
• People who are active now, prepare well and make decisions will benefit.