Developers continue pulling back from new A-city projects

The volume of new real estate project developments in Germany’s seven biggest cities rose slightly last year by 1.1%, largely thanks to commercial property projects rather than residential, which fell back, according to the latest annual study produced by researchers Bulwiengesa.

According to the author of the Bulwiengesa study, Ellen Hendrich, “The trader-developers are pulling back from the market” - by which she means the traditional project developers who build and then sell to an investor upon completion of construction.

This was the first time in the 14 years since Bulwiengesa has been publishing the study that the volume of just-finished, works-in-progress and just-planned projects actually fell versus the previous year (in this case by 1.9%). Notable was the fall in residential project developments of 6.8%.

Interpreting the figures, Bulwiengesa CEO Andreas Schulten said, “Re-urbanisation has been receding now for several years in the top cities themselves, with much of the new construction now happening in the surrounding commuter belts.

Helping to prop up the sector have been the so-called investor developers, who have properties built for their own portfolios. This segment of the market actually increased, driven by the investment programs of the state and municipally-owned housing companies in the bigger cities. Four of these - ABG Frankfurt, Degewo, Howoge and Gewofag - are listed among Germany’s Top 10 residential developers.

Schulten expects even commercial development to pull back sharply this year, “much more than the 3% which we’ve recently seen in the residential sector.” Berlin was the only city that saw rising commercial office development last year. Schulten says he sees the taxpayer stumping up for more projects in the so-called A-cities, given the falling willingness of developers to take on infrastructure projects.

The economic recession being brought on by the coronavirus pandemic is going to lead to “a complete re-organisation of the business of issuing planning permission”, said Schulten. Where in the past investors had ‘stood in line’ for their permits in the better downtown locations, cities in the future are going to have to work much harder to attract investors, using much more public money to entice bids, as has long been the case in the B- and C-cities. Architectural competitions in the future are also likely to be much leaner affairs, believes Schulten.

That prices for land and the top building sites might fall as a result of corona, making projects theoretically cheaper for developers’ cost calculations, doubts market veteran Schulten very much. “In all the years I’ve been closely watching this market, the last prices ever to fall were the actual prices of land. Rents and asset sales prices might fall, but rarely the price of the land itself.”