COVID-19 unlikely to cause distortions in residential market - iddiw

Germany’s small but prestigious iddiw (Institut der deutschen Immobilienwirtschaft) had its second digital Political Salon recently since the new online format became the norm. This time the panel focused on the effects of the COVID-19 pandemic on the housing market.

Founded in 2007 and based in Frankfurt, the iddiw is a communication platform that promotes interdisciplinary dialogue between universities, companies and public sector and political representatives.

Giving the keynote speech, Professor Michael Voigtländer of the IW Cologne (Institute of the German Economy), said he saw the continuing demand for institutional investors for German residential property as stabilizing for the residential market. This demand “makes the residential market as a whole a safe haven for investors”, he said.

He said he did not expect any major and long-term distortions for the residential real estate asset class as a result of the coronavirus, with at most only a very slight reduction in price levels. While there is no uniform trend perceptible in the movement of net ‘cold’ rents across Germany’s Big 7 cities as a result of the pandemic, he said, a minor year-on-year decline in residential occupancy costs is detectable, the first slight decline since 2016.

Voigtländer said the bigger changes were likely to appear in the shift in demand for interior furnishings and layout, along with the actual size of housing. "The Covid 19 pandemic is accting as a catalyst for the trend towards the home office. Our assumption is that in future there will be a greater demand for larger apartments to provide space for working from home, for example by adding an extra study."

Among other effects, and in common with other countries, this could mean that workers would put up with longer commuting distances, making living in the suburbs and hinterland of the bigger cities even more attractive. This presumes the existence of the necessary tolerance and infrastructure for home working. "Although the office will remain important, the acceptance and frequency of home office has increased significantly in most companies and will remain so even after the restrictions imposed by the pandemic," said Voigtländer.

Dr. Thomas Herr, president of the iddiw (and in his day job, CEO of proptech EVANA AG), presided over a lively discussion among the many participants, with the clear message coming across that, whatever other segments of the German real estate market may be negatively affected by the pandemic, the residential housing sector is unlikely to be among them.

The iddiw, with its regular salon formats, has had several well-known thinkers presenting their ideas about the likely long-term acceptability of the working-at-home concept. A recent presentation, given by Professor Andreas Pfnür of the Technical University of Darmstadt, highlighted the issues associated with so-called Stranded Asset Risk (SAR) and the threats posed to corporate real estate by inevitable changes in working patterns.