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The current real estate industry and real estate economics situation
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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The real estate industry has been on an annual rise for more than 13 years. The results of the previous years could always be surpassed. One could have gotten used to this.

Now, due to current events, such as the ongoing war in Ukraine, inflation with rising interest rates, rising construction and energy costs and a lack of transactions, stagnation or a turnaround has occurred. Although experts had already predicted this, it was not expected that it would reach such a high level.

The turnaround in real estate prices is consolidating

The high demand for office space in recent quarters has subsided. Office space under construction or nearing completion is now harder to lease or sell, partly due to the change in the work-life balance following the COVID-19 pandemic. When planning a new space, there is always the question of how much office space will still be needed in the future due to the “new work” and demographic change. New concepts such as hybrid working or the clean desk policy are increasingly being established in companies.

Likewise, the urgently needed housing construction no longer seems profitable for project developers and investors. However, the demand for housing is still current and will not diminish. As such, the rental housing market remains tight, and demand for home ownership is overshadowed by rising interest rates and high inflation.

Banks are starting to reanalyse, reevaluate and plan their portfolios. Due to the current regulatory framework (Basel, CRR, MaRisk and Amendment 2022 BelWertV), financing is becoming riskier for banks, especially in an existing business, in the absence of interest rate hedging or when fixed interest rate agreements expiring at short notice, and must be hedged accordingly. This can put prolongations at risk.

The real estate industry faces huge challenges

Consequently, the real estate market is currently facing enormous challenges:

  • Investments are declining because, in addition to softening real estate prices, financing is more difficult due to increased regulatory requirements by banks, and higher interest rates are a barrier for investors.
  • The “profit margin” of project developers has become lower to unprofitable due to the increased interest rates and construction costs.
  • Due to the climate crisis, there is a new view on project developments – sustainability is in the foreground.
  • In future, ESG must already be taken into account when applying for financing, which leads to approvals and permits prolonging the entire process.
  • A radical change has taken place in the retail sector and the new working environments, the impact of which is difficult to assess on future project developments.

These interrelationships show that the real estate industry is a multi-faceted and interdependent “system”. Many factors influence the real estate market and cause market volatility.

Understanding the overall cycle of a property

Frankfurt School offers the Certified Real Estate Manager certificate course to demonstrate the overall interrelationships and, above all, the cycle of the real estate industry, taking into account the cradle-to-cradle approach (starting with project development, through construction and operation, to the end of the use of the project).  In addition to traditional project development and real estate economics, real estate valuation, transactions and financing, construction project management, construction monitoring, real estate law and sustainable development, participants also gain targeted, in-depth knowledge of the entire real estate industry.

The programme focuses on the practical application of the taught contents. Coupled with practical examples, such as visits to construction sites, the knowledge acquired can be applied and implemented directly in daily “doing” as a perfect basis. Furthermore, it is the best prerequisite for a move into the real estate business environment. Experts from all sub-areas of real estate economics pass on their many years of experience and knowledge to the participants in the course of study that has yet to be offered to this extent before.

With further education, graduates receive a certificate from Frankfurt School of Finance & Management as Certified Real Estate Managers and, upon completion, have up-to-date knowledge of the real estate industry and can immediately apply their acquired expertise in practice.

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