Just like other parts of globe, Germany's property sector is struggling

New investment and construction activity down, very few new jobs added, home prices dipping

FRANKFURT (Reuters/News Desk) – Germany's property sector is under stress, prompting firms to call for government support, property developers to file for insolvency and share prices of landlords to plunge.

The real estate industry in Europe's largest economy long benefited from an era of cheap money that fed a decade-long boom, but now it is grappling with a major about-face in fortune, a dynamic also rearing its head in the United States and Sweden.

Certainly, it is part of the worldwide phenomenon as commercial real estate investors and lenders are slowly confronting an ugly question - if people never again shop in malls or work in offices the way they did before the pandemic, how safe are the fortunes they piled into bricks and mortar?

Read more: Commercial real estate investors around the world risk painful losses

Rising interest rates, stubborn inflation and squally economic conditions are familiar foes to seasoned commercial property buyers, who typically ride out storms waiting for rental demand to rally and the cost of borrowing to fall.

Here are five reasons that show the extent of the sector's crisis in Germany:

1. CONSTRUCTION JOBS

Jobs in the building industry have risen steadily since the financial crisis more than a decade ago, but growth is slowing sharply. Data published on Tuesday showed just a 0.1 per cent year-on-year increase in May in jobs, the slowest rise in 10 years. "No improvement in the situation is foreseeable," the federal labour office said.

2. PLUNGE IN NEW CONSTRUCTION

Cranes may still line the horizons of Berlin and Frankfurt, but new construction plummeted in Germany during the first half of the year. It's just the latest in a flurry of indicators that show real estate in Germany is in a deep funk.

New building permits in Germany dropped 27pc during the first five months of this year, compared with the same period last year.

"Many, many property developers at the moment are postponing projects or slowing them down," said Francesco Fedele, chief executive of BF.direkt – a property financing consultant.

3. VONOVIA VS THE DAX

Vonovia, Germany's largest real estate group, serves as a bellwether for Germany's property sector. Its shares have underperformed Germany's blue-chip DAX index.

Analysts at Stifel recently downgraded Vonovia and other property companies to "sell" from "hold", noting they would be subject to "a protracted hangover" after "a seemingly endless party of growth fuelled by ever cheaper finance".

4. HOME PRICES

Germany now belongs to a small group of European countries, including Sweden and Denmark, where residential prices have been falling, marking a reversal from years of gains.

5. TRANSACTIONS

Germany is the largest real estate investment market on the European continent.

Investment volumes are down across Europe, but the fall in Germany brings transactions to 2012's levels, according to Jones Lang LaSalle.