On the status of the real-estate industry and real-estate economy
Executive Education / 25 May 2023
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Birgit Ricke has been working as an architect, project manager and executive in multi-project management of construction projects throughout Germany for 30 years. She began her professional development in the field of planning and construction management of large-scale projects at the architectural firms HPP and gmp Architekten. At FS, she teaches in the Certified Real Estate Manager certificate programme.

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For over 13 years, the real-estate industry experienced steady annual growth. Every year, business results surpassed the results achieved the year before. It had almost become a habit…

But right now, amidst ongoing crises such as the continuing war in Ukraine, inflation and climbing interest rates, not to mention rising construction and energy costs, the general lack of deals and so on, the industry is positively stagnating – perhaps even shrinking. Although experts have been forecasting such a thing for a while, nobody expected it to happen so dramatically.

The turnaround in real-estate prices is becoming a steady downward trend

In recent quarters, the high demand for office space has collapsed. It’s now more difficult to lease or sell office space that’s currently under construction or nearing completion – not least due to the change in work-life balance following the Covid-19 pandemic. For planners of new construction projects, the overriding question is just how much office space will still be needed in the future in view of New Work practices and demographic change. Increasingly, businesses are showing a willingness to adopt new approaches such as hybrid working and clean-desk policies.

Similarly, the urgently needed construction of residential accommodation appears to have become unprofitable for project developers and investors. But demand for living space is still highly relevant; it won’t just disappear. The rental housing market is still under pressure, although demand for home ownership is currently overshadowed by rising interest rates and the high rate of inflation.

Banks are starting to reanalyse, re-evaluate and reschedule their portfolios. Due to the regulatory regime that currently applies to German banks, (Basel, CRR, Minimum Requirements for Risk Management [MaRisk], the 2022 amendment to the Mortgage Lending Value Regulation [BelWertV], and others), financing is becoming riskier – especially in existing business segments where interest-rate hedging doesn’t apply, or fixed-interest-rate agreements are about to expire – and must be hedged accordingly. This could also jeopardise loan extensions.

The real-estate industry is facing major challenges

So there are a number of reasons why the real-estate market is currently facing huge challenges:

  • Investments are declining, because in addition to falling property prices, financing projects are more difficult for banks to arrange due to more stringent regulatory requirements, while higher interest rates represent a hurdle for investors.
  • Due to rising interest rates and increased construction costs, the profit margins for project developers are lower, to the extent of yielding no profit at all.
  • The climate crisis is bringing a new perspective to project developments, with sustainability now a top priority.
  • Future funding applications must take ESG considerations into account, meaning that the relevant approvals and permits will prolong the whole process.
  • Radical changes have taken place in retail and new working practices, and their impact on future project developments is difficult to assess.

In view of the circumstances described above, it’s clear that the real-estate industry is a multifaceted, interdependent “system”. Many factors influence the property market and cause market volatility.

Understanding the full real-estate lifecycle

For those anxious to learn about the complex interdependencies and above all, lifecycles in the real-estate industry, taking the cradle-to-cradle approach into account (from development to construction, from operation through to project end-of-life), Frankfurt School offers the Certified Real Estate Manager certification course. Course participants are given detailed professional insights into the real-estate industry as a whole, including traditional project development, real-estate economics, real-estate valuation, transactions and financing, construction project management, building monitoring, real-estate law and sustainability.

The course focuses on the various practical applications of the course content. Alongside real-world experiences such as tours of construction sites, course participants can readily apply and implement the knowledge they acquire in their daily tasks and jobs. They will also find the imparted expertise forms the best possible foundation for a move into the real-estate business. During the course, experts specialising in every area of real-estate economics provide insights based on years of hard-earned experience – no previous course has covered the industry to this extent.

Upon completing the course, graduates are awarded a Certified Real Estate Manager certificate by Frankfurt School of Finance & Management, reflecting the fact that they now possess cutting-edge expertise in the real-estate industry and can immediately start to apply their knowledge in practice.