In the German market for multi-family homes, investments are currently being made primarily in existing properties. The reason is obvious: new residential construction has fallen drastically in recent years. There are simply not enough new buildings available.
The situation has been caused primarily by the significant rise in construction costs. Raw material prices and supply bottlenecks have driven them up sharply. Added to this are more difficult financing conditions and often expensive land purchases by project developers. This chain of factors leads to construction delays and project halts.
The focus of private and institutional investors is therefore on existing buildings. However, the market has become more complicated here too, as the issue of ESG (EU requirements for the environment, social affairs and corporate governance) is having an impact on the value of existing apartment buildings. It is becoming apparent that the prices of properties in good energy condition and unrenovated properties are increasingly diverging.
In fact, many existing properties currently traded on the market are in need of refurbishment. Together with the high financing requirements, this poses major challenges for many portfolio owners. It is often even a reason for them to sell - which is why there are so many properties on the market that are in need of development.
When investing in such a property, the relationship between the purchase price and refurbishment costs must be carefully weighed up. Prospective buyers benefit from the fact that prices for apartment buildings that do not yet meet legal standards have fallen.
In 2023, for example, the average asking price for apartment buildings with energy efficiency class A was more than twice as high as for properties with the worst energy efficiency class H. However, anyone who acquires a developable property and invests in its refurbishment is likely to enjoy significant increases in value in the medium to long term. (21.6.24)