The ongoing pandemic has had a significant impact on GDPs around the world and on the global economy as a whole. In Germany, where our main investment focus lies, the economy contracted by more than 9% in Q2 of 2020, which is still fairly good compared to the 30% in the US. These numbers stand in strong contrast to the developments over the last few years in the property markets, which saw surging asset prices and real estate valuations.

Within the real estate market, the weeks of lockdown and the widespread economic slump affected the hotel and retail sectors the most. With hotels and shops forced to remain closed and activity only picking up gradually since, there is currently a lot of uncertainty in those markets. Additionally, retail shopping had already been under pressure prior to Covid-19 from online shopping replacing many local shops.

With regards to office buildings, the increasing use of home-office and the unsecure economic environment resulted in reduced letting activities and less new developments. However, the prices of office buildings have remained stable throughout the second quarter of this year. Nonetheless investors are reluctant to enter new investments in the office market, which is reflected in the much lower transaction levels (-59% globally) compared to last year.

In contrast to the above sectors, residential properties are now in high demand. Capital designated for more opportunistic strategies and sectors currently flows to the safe haven of real estate; the residential sector. Due to the pandemic many people are working from home and spending more time there, consequently many tenants and buyers are now looking for bigger apartments or to relocate. This is triggering many new opportunities.

The German parliament is meeting in September to discuss how to protect its economy and real estate sector. A prolongation of the government’s short-time work compensation, more financial support for hotels and retail shops and extended insolvency protection are being debated. Additionally, the government is evaluating the right for employees to demand to work from home. If such a law would be passed, it would likely affect the office market, but as of yet it is unclear if and how this shift would unfold.