The pandemic continues to have Germany and the entire world firmly in its grip. This is also felt in the German commercial real estate markets, which had experienced more than a decade of upswing until 2020.
The ongoing transformation process in the retail sector due to the pressure from online retail is primarily at the expense of high-street locations and shopping centers. Prime rents are therefore under (strong) pressure. Due to the associated uncertainties, the investor focus shifted from these asset classes towards specialist markets and retail parks, especially with food anchors. As a result, yields for shopping centers and trade properties in high street locations rose in 2020, but remained largely stable in 2021, while yield compression continued for specialist markets and retail parks.
The office markets of the Top 8 cities were characterised by a shortage of space until 2020. Vacancy rates fell below 3 % on average, and even in Frankfurt and Dusseldorf, which traditionally show quite high vacancies, they slowly moved towards the fluctuation reserve actually required. In the course of the pandemic, the investment and especially the rental volume collapsed in 2020. Vacancies rose, but rents and yields remained stable, even though effective rents are clearly under pressure. With the beginning of the second half of 2021 a slight recovery can be felt, especially in the rental market. However, it remains to be seen what short term effect the current pandemic situation will have. In the medium term, the question is what the future office working environments will look like, and how the office market will adapt in the long term to the declining demand due to the demographically induced decline in the number of employed persons.
The hotel industry came into the crisis quite solidly due to increased profitability and good macroeconomic output conditions, but was hit all the harder by the pandemic. Key performance indicators plummeted and have – with small glimmers of light in the summer months – not recovered so far. Individual sectors were affected very differently, depending on their orientation and their location. While domestic tourism-oriented hotels in holiday regions have come through the crisis quite well, business hotels in internationally oriented locations have struggled a lot.
Even though the German commercial real estate market was hit quite hard by the pandemic, a closer look reveals that Corona hardly acts as a game changer but rather as an accelerator on processes that were already underway or at least emerging. This particularly applies to the changes in the course of digitalisation, which above all strongly increases the demands on flexibility of spaces. But also sustainability aspects play an increasingly important role, especially when competing spaces are available on the market.