News/Real Estate Finance

REECOX: German real estate sector sees positive development over the course of 2021

Deutsche Hypo REECOX gains 10.0 % compared to 2020

In the past year, the German real estate sector showed positive development on the whole. While a look back at 2021 indicates a clear upward trend of 10.0 % year on year overall, a negative result of -3.2 % was recorded in comparison with the third quarter.

Frank Schrader, Managing Director Deutsche Hypo – NORD/LB Real Estate Finance: “Just about two years ago, we started hearing the initial reports about the coronavirus. The effects have been palpable in the real estate sector as well and continue making themselves felt to this day. Still, an investment volume of around € 60 billion in the German commercial property sector in 2021 suggests that the demand for real estate remains very high – and that the asset class itself has lost none of its appeal. The hope remains that the spread of the coronavirus can be contained once again in 2022. In addition to the challenges posed by the pandemic, the key issues we see are inflation, central bank policy and the development of interest rates.”

Once every quarter, the REECOX provides an overview of real estate market activity in Germany, France, the UK, Poland, Spain and the Netherlands. The index for each of the six countries is calculated using five input variables. In Germany, those variables are the DAX, the DIMAX, the European Commission’s Economic Sentiment Indicator (ESI) for Germany, the basic rate of interest pursuant to Section 247 of the German Civil Code (BGB) and the interest rate for ten-year German government bonds. The predominately negative performance of the German REECOX towards the end of the year was largely due to the development of the business climate and the DIMAX. The business climate, as measured by the ESI, closed the fourth quarter with a decline of 4.2 % to 113 points. With a drop of 9.1 % to 910 points, the losses on the DIMAX were even more marked. By contrast, the German blue-chip stock market index DAX developed positively in the fourth quarter, posting gains of 4.1 %.

Harald Nolterieke, Head of the Munich office, says: “In 2021, the German real estate market proved itself once again to be a safe haven for investors. The logistics and residential property sectors in particular were among the year’s winners, and the trend in terms of demand continues unabated. Right now, we are seeing returns of 3 % to 3.5 % on logistics properties – a level otherwise reserved for top office properties in big cities. Across all asset classes and sectors, however, the mounting labour shortage is making itself felt. Along with the current supply bottlenecks, that shortage is the most significant limiting factor and is increasingly driving down return on investment. Recently, it has also started having an impact on real estate market sentiment.”