Real Estate

This is the real estate year 2021

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The good news: if you are considering buying a house or apartment, you will probably hardly have to pay interest on the loan in the coming year. At the end of the year, the building finance broker Interhyp asked ten credit institutions in Germany what development they expect in building interest rates. The result: The majority assume that the central banks will continue to support the economy in 2021. As a result, capital market returns are likely to remain low for the time being – and so will building interest rates. “We continue to expect favorable interest rates in 2021, with a trend towards a slight increase over the course of the year,” says Mirjam Mohr, Board Member for Private Customer Business at Interhyp.

The bad news reveals itself when you look at house prices. Market observers had speculated that the boom on the real estate markets could end in the wake of the corona crisis. There were plenty of signs of this: short-time working, job cuts, growing fear of investing in the face of an uncertain future. Nevertheless, the soaring property prices continued – to the chagrin of many prospective buyers and potential builders. Experts also expect prices to continue to rise in the new year. “Especially in metropolitan areas and regions that are generally economically prosperous, buyers and builders must expect real estate to become more expensive in 2021”, says Michael Neumann, member of the management board at the financial services provider Dr. Small.

Houses on the outskirts are becoming more popular

After all: at least in large cities, the era of extreme price increases could be drawing to a close. Because the pandemic has made the periphery a real alternative for millions of Germans. “Anyone who has the opportunity to work more from home even after Corona will take longer to get to work – and due to lower property prices in the surrounding area, they can afford a larger property or a house with land,” explains Neumann. It can already be observed that the prices for houses and apartments in the peripheral locations and so-called B-cities are rising. This trend is likely to continue in 2021.

Retail investors investing in real estate securities should be aware that the pandemic has affected some market segments more than others. The losers are primarily commercial real estate. The crisis did the least harm to offices. Market observers assume that office workers will work from their desks at home one or two days a week even after the corona crisis. Even so, the office will outlast the pandemic. “More home office or remote working does not necessarily mean that fewer square meters are required,” says an analysis by the real estate service provider JLL. For the new year, the experts assume that office rents in the seven largest metropolises in Germany will increase by 2.6 percent.

Other real estate sectors hit harder by pandemic

The forecasts are less favorable for hotel and retail properties. “In particular, the travel restrictions and the latest lockdown measures are clearly affecting companies in these sectors,” says Helge Scheunemann, Head of Research at JLL Germany. The federal government has initiated generous financial aid, but it is questionable whether it will be enough to prevent a wave of bankruptcies in the coming year. In the medium term, 50,000 shops are about to be shut down, warns the HDE trade association.

When hotels lack guests and retailers earn less or even file for bankruptcy, not only do rents fluctuate, but the value of real estate also falls. A wave of bankruptcies would therefore also have consequences for funds that invest in hotel and retail properties. The Scope rating agency downgraded twelve open-ended real estate funds in June, including the three largest in the industry. Deka Immobilien Europa, Commerzreal’s Hausinvest and UniImmo Europa each fell by one grade.

Logistics properties are on the winning side: They benefit from the massive increase in online trading. The top rents for storage space from 5,000 square meters remained stable in all regions in the Corona year 2020, reports JLL expert Scheunemann. In 2021, they could even tighten slightly.

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