BERLIN: Germany’s residential property boom may be drawing to a close, at least in some of the hot markets like Munich, Berlin and Stuttgart. Prices in those three cities may even decline by as much as a fourth or a third over the next five years.
These are among the forecasts made by the so-called “Council of Real Estate Wise Men” at the German Property Federation (ZIA) in the analysis they publish at the beginning of each year. “The time of turbulent demand in Munich, Berlin and Stuttgart has come to an end,” said Harald Simons, head of the Empirica research group and the member of the council overlooking residential real estate. Nonetheless, both the council and other experts expect the residential market to be uneven across the country as construction continues apace and longer term projects get finished.
In the meantime, however, lagging construction of office space may be reaching critical proportions as virtually full occupancy creates shortages, the experts fear. Andreas Schulten, head of the Bulwiengesa research group and commercial property analyst for the council, spoke of a “striking lack of construction in the office sector.” He warned this could slow growth in some cities as companies postpone or relocate activity. “From an economic perspective, a shortage of office space is a dangerous signal,” he said.
New office construction fell by 320,000 square meters to 1.6 million square meters in 2017 in the 127 markets analyzed. The vacancy rate fell for the seventh year in a row, to 1.9 percent in Munich and 2.4 percent in Berlin, for instance. The focus of government policy on residential real estate may in fact be to the detriment of commercial construction.
The coalition agreement between Chancellor Angela’s Merkel’s Christian Democrats and the Social Democrats aims for 1.5 million new residences over the next four years, an ambitious 375,000 a year. The government is ready to put in €2 billion to subsidize low-cost housing.
But the council of wise men criticized the government for impeding housing growth by constantly adding new regulations and requirements. Already in 2015, it was estimated that energy regulations, parking place requirements and other local building standards had increased construction costs by 30 percent. Council chairman Lars Feld, an economist at University of Freiburg, called for a reduction or optimization of regulation.
