The Column. Eike Becker: "Turning Point", published in Immobilienwirtschaft 03/2022

The Column. Eike Becker: "Turning Point", published in Immobilienwirtschaft 03/2022

While I enjoy the view over the rolling countryside and the Ionian Sea at the foot of Mount Etna, the small winery where we are guests is getting ready for a two-month winter break. The confetti of New Year’s Eve has already been swept up, and the last guests are gathering for breakfast in the garden. The lemon, orange and grapefruit trees still bear a few fruits, a pigeon coos incessantly from the more than hundred-year-old pine tree, a tractor distantly moves away rattling. Dogs bark in the nearby valley. The sun spreads a pleasant warmth at midday. Here, people have grown accustomed to volcanic eruptions, hot summers, stinking garbage on the potholed streets, and a monotonous daily routine full of longevity.

How different seems Germany, whose mental state foams at me across my screen.

"Germany is stumbling toward the future. What we lack: efficiency, a dash of dynamism, a shared vision," I read in “Der Spiegel”. And “Die Welt” quotes Winfried Kretschmann as saying "2023 is the tipping point for German prosperity."

Too much bureaucracy, a high tax burden, a declining willingness to innovate, high energy costs, labor shortages. According to a ZEW study, Germany's competitiveness continues to decline.

And in the new „Country Index of Family Businesses“, the Federal Republic ranks only 18th.

At first glance, many of these statements seem alarmist to me and therefore exaggerated.

But where does the real estate industry in Germany stand right now? And what does this mean for cities and society?

Some municipalities have taken advantage of the unprecedented boom of the 10s to repair their public infrastructure, densify existing neighborhoods and build new social housing. The better-organized cities have improved in quality and are now among the most livable cities in the world.

But by far not all of them. Many have not been able to take advantage of the extremely favorable conditions. Their potential success was stumped by dysfunctional administrations and overstretched decision-making processes.

What a shame! This is what missed opportunities look like. After all, the zero-interest rate phase has passed and is not likely to return. 
At current construction costs and interest rates, even the highly subsidized municipal housing associations can no longer build. Especially not for a rent below 10 euros per square meter.

Even the listed housing companies have essentially ceased their construction activities. There is currently no prospect of economic success for them with new construction projects.

De facto, rental housing construction has thus come to a standstill.

In the case of owner-occupied apartments, too, the interest rate and construction cost surcharges are leading to a full brake. Even with the inheritance from their grandma, no average earner can afford their own apartment anymore. What an indictment of a society.

So the 700,000 missing apartments are not being built. And in the metropolitan areas, rents will continue to rise. With no prospect of a turn for the better. Because the designation of inexpensive building land in outer areas or additional densification in the center is not sufficiently offered by the municipalities. For years, the mantra in the administrations has been: both land consumption for external developments and inner-city densification are the devil's work. A stalemate that forces all parties to inaction. A tragedy. And higher standards for earthquake safety, handling hazardous materials and energy consumption are still being worked out. Inexpensive and simple construction is then all the more impossible.

So much for residential construction.

And what is happening to office construction? It is still affected by the home office. No one needs more space at the moment. But employers are realizing that they need to become more attractive if they want to attract young talents and bring the majority of their colleagues back to the office. First and foremost, this includes an accessible, attractive, environmentally responsible work environment that promotes communication.

That's why I see opportunities for the ecological and social upgrading of existing buildings. More and more office tenants are reviewing their carbon footprint and looking for conducive rental spaces to do so. The unrenovated dirty huts with fossil fuel energy supplies can no longer keep up with this and are being sorted out.

This is in line with the considerations of the major property owners. If they want to continue to be financed, they have to make their outdated portfolio ESG-capable. This will also enable them to counter the devaluation pressure. After all, the good old days of free profits from annual property revaluations are over for the time being. Today, many buildings have to be devalued again. Unfortunately, this will take a few more quarterly reports and will certainly take until the end of this year.

But once that is done, the valuation losses can be offset again by real estate sales. Then there will be more favorable opportunities again for newcomers and opportunists. But we'll have to wait until that is the case. Because real estate prices have not yet been adjusted to the current market situation with higher interest rates and construction costs, buyers and sellers are not coming together. The volume of transactions has collapsed.

So massively, in fact, that the real estate industry is taking a break right now. And it has plenty of time. It must use that time to reflect on its tasks and its self-image. It must clarify which economic, ecological, and social goals it wants to pursue. Because it is in no way doing justice to its function, to the tasks it must fulfill for society. Today in the crisis even less so than in the booming period.

Where is the roadmap to a climate-neutral real estate industry? Where are the proposals for cost-effective, socially compatible, mixed-income housing? Digitalization? Administrative reform? Acceleration of procedures? Standard reduction? Modular construction? Resilient supply chains? Cradle to cradle? 
There are no energetic answers to all these questions yet. But by the time the economy picks up again, at the latest, the goals must be clearly formulated and the ways to get there must be found. It is no longer enough to just patch up holes on a small scale and plod forward. 

That's why we now need critical and open discussions in all associations, committees, companies, chambers, institutions, at regional conferences and workshops, across all sectors, with the participation of all social forces.

So, let's put the facts on the table and clarify what needs to be done next. And who is responsible for it. Who is responsible for ensuring successful urban production and real estate management? We can't go on like this. We need faster progress and greater achievements. It is the real estate industry's job to ensure that society lives in the world it wants to live in.

Germany stands for liberal democracy, human rights, equal treatment, respect, and tolerance. It is the built environment in which these values are lived out. It is about time for the real estate industry to take responsibility for this.

Meanwhile, the sun has disappeared behind the horizon. 

The dogs in the neighboring valley have started barking again. In the nights, the wintery cool earth gains the upper hand as well. In the dark, from our terrace, it is easy to watch the flame-spitting lava slowly flowing down Mount Etna.


The Column. Eike Becker: "Turning Point", published in Immobilienwirtschaft 03/2022