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Sentiment Brightest in the Residential Property Sector

Roughly six months on since the outbreak of the coronavirus crisis, the mood among German residential property investors remains upbeat. The Real Estate Climate in the residential sector was better than the climate of any other property class. Sentiment among real estate market players is periodically polled by Deutsche Hypo and bulwiengesa, who use the survey evidence to compile a climate index.1

The August climate index for the residential sector stood at 127.8 points, which is a higher score than the previous month (120.0). A relatively high score was also registered for logistics sector (122.7 after 128.1 the previous month), which ranked second after the Residential Climate. Trailing far behind are the sectors Office (70.1 points), Retail (29.8 points) and Hospitality (28.7 points). The fact that sentiment in the residential sector is so much better than in the other real estate sectors highlights the crisis resilience of residential real estate.

Significant Rise in Sentiment since Spring

In April of this year, the Real Estate Climate had temporarily bottomed out. Even the Residential Climate experienced a noticeably deterioration in sentiment between March (127.9 points) and April (95.4 points). It was a time still fraught with tremendous uncertainty for the entire real estate industry, and the market action in general seemed to be stalled for a while. Moreover, some institutes released forecasts in March and April that predicted a nosedive in housing market prices.

However, these forecasts were not borne out by events on the ground. On the contrary, condominium prices kept on climbing even at the peak of the coronavirus crisis. According to the Association of German Mortgage Credit Banks (vdp), residential property prices rose by 6.0 percent over prior-year period during the second quarter of 2020.2

Price Trend Reflects Strong Demand for Residential Real Estate

Quite obviously, residential real estate boasts above-average stability during times of crisis, even when it comes to property prices. Although the vdp also reported rising prices for commercial real estate, its growth rate of 3.9 percent represented a slightly slower pace.

That residential real estate has superior price dynamics than commercial real estate had already become apparent prior to the coronavirus crisis. Even during the quarters preceding the pandemic, residential real estate had seen faster price growth. This goes to show that the situation in Germany is generally defined by keen demand for residential real estate – with or without the crisis.