Real Estate

That was the real estate year 2020

Shell construction of a house
Building interest rates are low – but for how much longer?dpa

Given the rising prices on the real estate market, anyone wondering what it takes to put an end to the upward trend has at least been a bit wiser since this year: a pandemic is not enough. In many asset classes, Corona caused prices to drop, at least temporarily. This is not the case with residential real estate, where prices continued to climb despite the crisis. According to the Federal Statistical Office, houses and apartments in Germany were 7.8 percent more expensive than a year earlier in the third quarter of 2020. This is the strongest price increase since 2016.

The ongoing price boom in residential real estate is likely to have been the biggest surprise for real estate analysts in the Corona year 2020, which is not lacking in surprises. After all, there were plenty of reasons to expect the opposite. Short-time work, the fear of job loss and a reluctance to make large investments in the middle of a pandemic should have slackened interest in houses and apartments and pushed prices down. Instead, the Corona crisis probably even fueled price growth.

Continued high demand for living space in metropolitan areas

Market observers assume that the pandemic has further accelerated the tendency of solvent clientele to flee from cities, which has been observed for a long time. Those who can afford it, under the impression of the lockdowns, are now looking for a little house in the country rather than an apartment in the city center. Because the demand for housing in metropolitan areas remains high, the price increases are spreading to the suburbs and rural areas. This is good news for investors – not for tenants looking for home ownership.

All those who look with horror at the ever-increasing real estate prices could at least comfort themselves with low building interest rates in 2020. Throughout the year, interest rates on real estate loans were set in concrete, and at an extremely low level. Even the good news from vaccine research towards the end of the year, which caused movement in the financial markets, could not change that. In December, according to the Interhyp trend barometer, the interest rates for real estate loans with terms of 10 and 15 years were almost at a record low, at least significantly lower than at the beginning of the year.

Differences in commercial and residential real estate

The year 2020 was more difficult for commercial real estate than for residential real estate. In this market segment, too, prices had risen for years. Corona apparently brought the trend reversal: Projections for the year as a whole indicate that office prices in major German cities fell for the first time in years in 2020. This was due to the recession, bankruptcies in retail, vacant hotels and the trend towards home office – factors that are likely to play an important role for the office property market in the coming year.

The opposite development of the two major real estate segments was noticeable in open real estate funds. These faced different challenges in the past year, depending on their investment focus: Funds with a focus on residential property sometimes had problems finding investment properties because the market was empty. Investors didn’t even have to fear loss of rent. The short-time work allowance and other Corona aid kept the residential property market and the fund’s returns stable. By contrast, fund managers who invest in commercial real estate suffered from the crisis. Rising vacancies, falling office prices and falling rents depressed returns for many of them.


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