Germany's real estate sector is facing a severe crisis as new data reveals a sharp decline in construction projects during the first half of the year. The property industry seeks multi-billion-euro support from the government to cope with the challenges. Larger cities like Frankfurt have experienced a significant slowdown in residential and hotel development, while financing has become increasingly difficult for developers. With the end of the era of cheap money, the once-booming property market now grapples with insolvencies, plummeting transactions, and falling prices. Developers find themselves searching for solutions, including co-investors or partial project sales to stay afloat in this turbulent market.
In Frankfurt, Germany, there was a significant drop in new construction projects during the first half of the year, as indicated by recent data. This decline, amounting to 47% compared to the average of the past two years, signals challenges in Europe's largest economy's property market. Specifically, home building saw an even steeper decline of 54% during this period, according to Bulwiengesa, a property consultant and analysis firm.
The data highlights a significant downturn that is prevailing in Germany's real-estate industry, marking its most severe crisis in many years. Sven Carstensen, the CEO of Bulwiengesa, mentioned that there is considerable prudence in project development due to the current situation.
Germany, like other markets, is experiencing a significant shift in its economic circumstances, following the conclusion of the era of low-cost borrowing, which had fueled a decade-long property boom. Consequently, the industry is now grappling with insolvencies, declining transactions, and a decrease in property prices. Last week, Reuters reported that the country's real-estate sector plans to request multi-billion euro assistance from the government during a meeting with Chancellor Olaf Scholz in September.
Jan-Marco Luczak, a parliamentarian advocating for a property tax reduction as demanded by the industry, described the situation as dramatic, noting that more property developers are laying off employees. Frankfurt, renowned for its skyline and housing the European Central Bank, is also experiencing the impact of the downturn.
Bulwiengesa's analysis also revealed a 1.6% decrease in the volume of properties under development during the first half of the year compared to the previous year, with more significant declines in larger German cities. In particular, residential development saw a 6.7% decline in the biggest cities, while hotel development experienced a more substantial drop of 12.1%.
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