The restrained economic growth of recent years affected all segments of the property market in Germany. Correspondingly, the current upturn in the economy as a whole will have a positive impact on all segments of the German property market, albeit at differing rates. While demand is already picking up on the office and hotel markets, the impact on the retail market and, in particular, on the private residential market will be delayed. However, assuming that the upturn in the economy as a whole is sustained, all market segments should enjoy positive growth in the course of next year.
The last cyclical downturn brought previously unknown vacancy rates to the most important office locations in Germany. Having hit rock bottom in 2005, the market has been picking up since last year. In the first half of 2007, there are signs of positive growth in the letting markets, which are in the early phase of a market upturn. This upturn will continue. Buoyed up by developments in the economy as a whole, demand for space will grow steadily. Modern office space will benefit from this and prime rents will rise.
In recent years, German retailers have suffered from private households' reluctance to indulge in consumer spending. In the first months of the current year, spending was depressed by the increase in value added tax albeit not to the extent that had been feared previously. In the course of the economic upturn with rising incomes, positive growth in sales is to be expected in the second half. In 2008, a sustained economic upturn accompanied by an increase in the numbers employed and rising incomes should be reflected even more strongly in an improvement in consumer sentiment and higher retail sales.
In 2006, the German hospitality industry benefited from an increase in the number of overnight stays for the third year in succession. The hotel sector profited disproportionately from this development. Following the success of 2006, further positive growth in the German hotel market is foreseeable for 2007 on the basis of the economic upturn. However, there can be no doubt that the market is still subject to cut-throat competition, as is evidenced by the fact that room rates are low when compared internationally. This situation will not change in the medium term.
In contrast to previous years in which the sustained weakness in the labour market and the abolition of the home buyers' subsidy depressed the residential market, framework conditions for the German residential market have since brightened. Nevertheless, the economic upturn is still not yet stimulating household demand on the residential market to any great extent. The German residential market is currently consolidating at a low level. In the medium term, the improvement in the economic environment, the reduction in unemployment and the looming increase in incomes will result in increased market activity.
Click here to read the full report (PDF).