Negative interest rates continue to pose a risk of bubbles developing in various asset classes, particularly in the real estate market. Due to the persistently low interest rate environment, investors are still searching for higher-yielding investments. As a result, they are investing increasingly in real estate despite rising vacancy rates and falling rents. In doing so, they are accepting ever lower initial returns. Previous trends have been sustained this year, surprisingly.
The corona pandemic is adding to the strains on the real estate market – and especially the market for offices and commercial buildings – by accentuating the imbalance of supply and demand. In particular, the upswing in the market for office space has been halted for the time being: rents are falling, and with more people working from home there is little prospect of any expansion in office floorspace usage – hence the pressure on prices. The boom in online trading due to the corona pandemic is also dragging down prices and rents for retail floorspace.
Moreover, net immigration declined in the first half of 2020. 1.72 percent of all homes (for owner occupation or for rent) are currently vacant. This is a total of about 78,800 units. The following chart illustrates the trend over time. By contrast, prices of owner-occupied homes have continued to rise since the outbreak of the corona pandemic. Vacancy rates here have been relatively constant over the past years. The supply overhang problem is less pronounced in this segment.
The consequences of a real estate crisis with sharp price corrections could be significant, with banks, insurers and real estate funds all being equally affected.
(From the Risk monitor 2020)