German property market worsens as foreign buyers drop to 10 year low

This is less than in any year since 2013 and comes against the backdrop of a 70 per cent plunge in sales volumes from levels before the 2020-2021 pandemic.

In 2023 foreign investors accounted for 37 per cent of transaction volumes in German commercial property, however, the most recent figures show it is now at the lowest reading of the past decade.

These severe figures coincide with a debate about whether Germany is once again "the sick man of Europe" - a label it was given in the late 1990s as it struggled with economic stagnation and high unemployment.

As foreign investors avoid the German market, it could potentially deepen the scars on Europe's biggest economy.

The nation worked years to shake that label off and build up its reputation, however, it has been reinforced as Germany weans itself off Russian energy, gets tangled in bureaucracy and sees far-right politicians gaining in the polls.

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Kurt Zech, one of Germany’s biggest developers, warns the market will keep struggling until foreign investors return.

In the past foreign investors accounted for half of all the deals for commercial property.

He said: "The Americans have to come back. When the Blackstones, the Blackrocks, the Morgan Stanley’s of this world and Carlyle and Apollo buy in the German market, that will be noticed and then we will all know that we have now reached the bottom."

For years, low interest rates, cheap energy and a strong economy sustained a boom across the German property sector.

However a sharp rise in interest rates and costs has put an end to the run, tipping developers into insolvency as bank financing dried up, projects stalled, major developers went bust and deals froze.

It follows official data which showed Germany as the worst-performing G7 economy since the pandemic, growing by just 0.3 per cent at the end of last year.

This caused a huge blow to the real-estate market and the industry called on Berlin to intervene.

Commercial property prices tumbled another 9.6 per in the first three months of 2024 compared with a year earlier after a 10.2 per cent drop for 2023 - according to the VDP banking association, predicting more pain ahead.

Carsten Brzeski, chief economist of Dutch bank ING in Germany, one of the country's biggest mortgage lenders said: "Germany was a beacon of stability in Europe and people flocked to buy property here.

"Now, the economic engine is stuttering and needs maintenance. It's no longer the shiny new thing investors want."

In the past foreign investors accounted for half of all the deals for commercial property which made up the bulk of Germany's property market and eclipses residential sales.

High energy costs, weak global demand, a disruptive shift towards net-zero economies, and growing competition from China are raising questions about Germany's economic model.

Konstantin Kholodilin of the German Institute for Economic Research said: "Until 2022, there was a speculative price bubble in Germany, one of the biggest in the last 50 years.

"Prices have been falling ever since. The bubble has burst."