Waiting for the turnaround

• In spring last year, many market players expected a turnaround in the property investment market if the European Central Bank (ECB) did not raise interest rates any further. After three ECB meetings without such an interest rate hike, these expectations have not been fulfilled. There were no signs of such a turnaround in February either. We registered a good eighty transactions with a volume of around €1.7bn, roughly the same level as in January. The figures for the first two months of 2024 are also roughly in line with the previous year's figures. Transaction activity appears to have bottomed out, but is probably not yet to increase. We are still not observing any significant increase in the number of transaction processes. In addition, some processes are still being cancelled and do not result in a sale because the landlord's target price has not been reached.
  
  
• The fact that less and less money is flowing into property vehicles also speaks against an imminent upturn. For example, German open-ended mutual property funds have now recorded net cash outflows for six months in a row and the inflow into special funds has roughly halved compared to the previous year. As the inflow of funds is a lagging indicator, the downward trend is likely to continue.
  
  
• Borrowed capital also remains scarce: financing conditions have been extremely restrictive for two years now and very few financiers are signalling that they will relax their conditions in the coming months. This is keeping refinancing stress high and will continue to lead to sales in the coming months.
  
  
• There are plenty of potential buyers for such properties and our general impression is that the number of investors signalling their willingness to buy is increasing. However, we are also realising that although a willingness to buy is a necessary condition for a transaction, it is not yet a sufficient one. For example, some investors are sometimes willing to buy, but only at unrealistically low prices. In other cases, transactions or even the submission of bids fail due to financing or the release of equity.
  
  
• Overall, our interpretation of the situation is that the trough will be prolonged and that the turnaround will be more cautious than dynamic. The return from the zero interest rate environment to a world with interest rates weighs too heavily.

You can download all figures and the corresponding data here.