Germany commercial property prices fall in Q2, break 5-quarter gains streak; here's why

Commercial real estate prices in Germany fell in the second quarter, breaking a five-quarter run of gains as renewed inflation fears, higher interest rates and geopolitical tensions put pressure on a property market still recovering from a deep downturn, banking association VDP said on Monday.The decline marks a setback for Germany's commercial property market, which had been showing tentative signs of recovery after several years of steep price falls following the war in Ukraine. The latest drop also highlights the greater sensitivity of commercial real estate to financing costs and economic uncertainty compared with the residential market.Why did commercial property prices fall?This year's conflict in Iran and the wider Middle East has revived concerns over inflation and interest rates, making commercial property financing more expensive and weighing on demand and prices.Prices of offices and retail properties fell 1 per cent in the second quarter from a year earlier, compared with a 0.5 per cent annual increase in the first quarter, VDP data showed."The commercial real estate market is reacting more strongly than the residential real estate market to geopolitical developments, rising inflation expectations, and interest rate trends," said Jens Tolckmitt, CEO of VDP.The findings mirror a July survey showing that sentiment among those financing commercial real estate in Germany deteriorated sharply during the quarter. "The future development of the commercial real estate markets depends, among other things, on whether and when the numerous geopolitical conflicts will be resolved," Tolckmitt said.Residential property holds upResidential property prices continued to rise, although growth slowed. Home prices increased 1.9 per cent year-on-year in the second quarter, compared with a 2.3 per cent rise in the first quarter.Ready to Make a Smarter Property Decision? Build Your Legacy with TOI Homes.