Demand, supply chains, interest rates: How is the war in Ukraine affecting the real estate market?

The war in Ukraine is a tragedy. In view of the suffering that this attack, which cannot be justified by anything, is bringing upon millions of people, all economic questions recede into the background.

Nevertheless, we would like to address the legitimate question of market participants about the impact of this war on the real estate market in Germany and in Berlin. Because in fact there are a number of implications, even if the real estate industry is less affected by this crisis than some other industries.

Millions of people have already fled Ukraine, and many are coming to Germany - including Berlin. These people need housing, and possibly for a long time. This will noticeably exacerbate the housing shortage that already exists in the capital.

The war in Ukraine is also causing further disruption to supply chains. The already existing procurement bottlenecks for certain materials for the construction industry will thus be further exacerbated. On the one hand this is exerting additional upward pressure on construction costs, while on the other construction activity is likely to decline further due to supply chain problems - despite high demand.

The sanctions against Russia are already driving up energy prices, and no reversal of this trend is in sight. As a result, energy costs are further fueling inflation, which is already elevated, and central banks are likely to be forced to take countermeasures. Even if the European Central Bank is likely to act very cautiously with interest rate hikes due to the risks to the economy, the moderate rise in interest rates is likely to continue.

Inflation, rising interest rates and uncertainty are likely to cause a slowdown in price increases on the real estate market - including in Berlin. However, we do not expect a trend reversal in the form of falling prices. Domestic and foreign investors see German and Berlin real estate as a safe haven, especially in the current environment of growing uncertainty. So far, there has been no sign of a slowdown in market activity, unlike at the beginning of the Corona pandemic, when the market went into a state of shock.

Sellers therefore continue to face high demand. Buyers should keep an eye on interest rate developments: With a view to the expectation of rising interest rates, they should consider bringing forward planned acquisitions in order to take advantage of the still favorable borrowing conditions.