The real estate investment market in Germany, which has been spoiled by growth for years, is facing further declines this year following a slump in 2022, according to a study by consulting firm EY.

"The real estate market is upside down," said Florian Schwalm, Managing Partner at EY Real Estate, on Thursday. Last year, the real estate investment market shrank by more than 40 percent to a total investment volume of around 67 billion euros, roughly the same level as in 2016. Almost 80 percent of investors surveyed as part of an EY study now expect transaction volumes to fall even further this year.

The sector is suffering from the massive rise in construction costs, high inflation and, above all, rising interest rates. "With Russia's attack on Ukraine and the subsequent energy crisis, inflation and the necessary interest rate hikes, we are also experiencing a turning point in the real estate market," Schwalm emphasized. EY is now observing "not only partially frozen transaction markets, but also falling prices across most types of use and locations". The German real estate market, which was popular with investors in the past, has become less attractive. The proportion of respondents who rate the German real estate market as less attractive than before has increased significantly compared to the previous year, from four percent to 36 percent. Market participants expect prices to fall for all types of use apart from logistics properties. However, EY does not anticipate a drastic slump.

(Report by Matthias Inverardi, edited by Ralf Banser. If you have any queries, please contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and the economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).)