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The German office market suffered its biggest decline in 20 years as rising financing costs and a sluggish return to office space dampened investor interest.
Data released on Monday by the German Association of Mortgage Banks, VDP, showed that the decline in the office market accelerated in the fourth quarter of last year, falling 13% from a year earlier. For the full year, it was over 10%, the largest decline since records began in 2003, and further is expected by early 2024.
JDP managing director Jens Tolckmitt said the property crisis has hit office buildings harder than residential buildings. He added that "demand for office space remains subdued" as the German economy falters and uncertainty increases whether employees will fully return to the office.
At present, problems in the commercial real estate market are putting some banks in crisis. Concerns about the sector's risk exposure are intensifying, with German lenders in particular receiving increasing investor attention.
German Finance Minister Lindner said in an interview on Monday that commercial real estate in Europe's largest economy was going through a "period of adjustment" but was "generally stable".
He added: "Many companies are worried and have had to adjust their expectations. ”
The commercial real estate exposure of German bank Deutsche Pfandbriefbank AG (PBB) is a wake-up call for investors. On Friday, the bank's shares fell to a record low.
Earlier last week, PBB had said it had raised provisions to make up for potential losses from a weaker commercial property market. In order to reassure the market, the company stressed that its funding needs for this year have been largely met.
VDP's Tolckmitt said German commercial properties are likely to remain weak as potential office buyers still require most sellers to be prepared for higher discounts than they are offering.
At the beginning of 2024, the market is still in the doldrums and will continue,he said.