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German property crisis deepens as foreign investment dries up

Frankfurt. Copyright Canva.
Copyright Canva.
By Eleanor Butler
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High interest rates and economic uncertainty are driving overseas investors away from German real estate.


Foreign buyers were responsible for 35% of commercial property purchases in the first quarter of this year, according to a report from BNP Paribas Real Estate.

That's a smaller result than any year since 2013 and comes after foreign investors accounted for 37% of transaction volumes in German commercial property in 2023.

The investment drop is driven by a number of factors such as high inflation and fears of a recession in Germany.

Although the economy performed better than expected in the first three months of the year, with GDP up 0.2%, experts believe that structural issues will continue to hamper output.

An unsettling downward trend

The country's economy shrank by 0.3% in both the fourth quarter and over the whole of 2023, making Germany last year's worst performing major economy on a global scale.

The downturn can partially be explained by pointing to Europe's energy crisis, as Germany's industrial sector was heavily dependent on Russian fuel.

Even so, there are more stubborn problems set to hamper future growth. An ageing population, a lack of public investment, overzealous bureaucracy, and sluggish productivity are all contributing to Germany's downturn.

While some of these issues were present during the decade preceding the pandemic, a number of positive factors attracted investors to the German property market.

Low unemployment rates, economic stability, and low interest rates notably boosted the country's profile.

"Starting around 2005, Germany experienced a 'labour market miracle'," writes the Center for Economic and Policy Research.

During this period, employment increased by more than 15%, up from 39.3 million people in 2005, to 45.3 million in 2019.

Critics believe Germany was too slow to adapt to technology

Compared with its European peers, Germany emerged relatively unscathed from the financial crisis of 2008, although productivity did begin to dip.

Some experts argue its present troubles are caused to some extent by Germany's failure to fully capitalise on technological advancements, combined with a shift towards low-productivity sectors.

As much as Germany's economic malaise is off-putting for inventors, the structure of the nation's property market can also deter investment.

Unlike countries like France and the UK, Germany is far less centralised, spreading its economic strength across several cities such as Berlin, Munich, Hamburg, Frankfurt, and Cologne.

This means that Germany lacks a stand-out hub, which is often where investors like to send their capital.

As cost pressures persist and construction sector prices remain high, experts are not expecting a strong increase in housing demand this year.

A report from the IFO institute published earlier this month shows that, in April, more than half of the companies (55.2%) in Germany's residential construction sector reported a lack of orders.


Some 17.6% of building construction companies reported cancellations, down from 19.6% in March.

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