Global market turmoil leading to a recession in Germany?

2 MIN READNovember 25, 2019
If it wasn’t already hard enough to find value in Germany’s real estate markets, some experts are now suggesting that the stagnating figures could lead to a recession. With the political situation in Europe provoking further uncertainty in the region, real estate investors, developers, operators and financiers are having to adapt strategies in order to minimise risk while still pursuing capital. 

GRI Club hosted a private, invite only breakfast for existing members and guests to allow for collegial, informal discussion and the sharing of professional opinions ahead of the annual Deutsche GRI 2020 taking place on 12-13 of May. 

The breakfast, which took place at the InterContinental Frankfurt, began with a presentation from chief economists (Berenberg Bank, DZ BANK). Participants believed that a recession wasn’t yet something to fear, as GDP is so high and is set to increase in the following years. The indebtedness of Germany will certainly increase further, but in comparison to other European countries it isn’t as high. 

However, it was said that there are a lot of structural weaknesses in the overall German economy that banks are trying to hide with 0% interest rate policies. These interest rates are likely to go down even further in the next two years. 

The participants also discussed some of the main global disruptions that Germany are likely to feel the effects of. The one closest to home was Brexit, with the country investing 13% less this year into the UK it has forced german investors to momentarily explore other opportunities. The European markets are expected to normalise a bit after Brexit is finalised. 

Most notably, some mentioned that Germany’s economic “Golden Age” was coming to an end, with France and India both expected to pass them in the next few years. This would both knock them out of the top 5 economies in the world and forfeit their title as the biggest economy in Europe. Some participants suggested German real estate was losing its competitive edge, while others discussed this as a perfect opportunity to shift investment appetite towards niche assets and real estate as a service. 

Which niche assets could drive German real estate forward?

Community and societal good will be one of the most important factors, as the wave of co-living and co-working has forced developers to think more about how people want to spend time with and interact with each other. Demographics and region-specific urbanisation will play a big part in this. It was also suggested that there will be many opportunities in the near future in healthcare, nursing homes and senior homes, as the prevailing trends focus more on real estate as a service. However success in this sector remains to be seen, as strict regulations don’t allow for any innovation or brand integration - making it hard to establish and scale up. 

GRI Club will continue to assess risk and discuss investment strategies next year at Deutsche GRI 2020, taking place on 12-13 May 2020.
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