While some recover, others are forced to exit the market. Major real estate companies are talking about stabilisation, but at the same time bankruptcies in the real estate sector continue to rise. Office properties, in particular, are being sold at significant discounts. Some speak of a „full-blown crisis“, while others deny it. This contradiction isn’t one at all – at least not if one looks behind the scenes. One could also say that the crisis is playing out on different stages, and one of them is getting much more attention than the other.

On the smaller, quieter stage – less visible to the public – the pressure continues to build. According to consulting firm Falkensteg, the number of large-scale bankruptcies in the real estate sector more than doubled last year compared to the year before. The hardest hit areas include interior construction, structural work, and project development. „Some developers are now trying to get rid of their land“, says Axel Quester, Vice President of the German real estate association IVD. „That’s why we’re seeing more and more sales below cost.“

For comparison: insolvencies have risen across all sectors – but only by about 30% on average. And the trend is far from over. Falkensteg expects insolvencies in the real estate sector to rise another 50% this year, as conditions have not fundamentally improved. Despite falling interest rates, high uncertainty in Germany is causing investors to hold back.

All this is happening quietly in the background. In the spotlight, however, are the CEOs and CFOs of the major real estate firms, who will present their quarterly figures again in May. Already in March, Vonovia CEO Rolf Buch said his company was emerging from the crisis earlier than others. Even Germany’s largest landlord of residential property struggled in recent years with rising interest rates, skyrocketing construction costs, and plummeting real estate values. Sales were intended to generate cash – but now the outlook is improving. „There’s no crisis among the publicly listed companies“, Berenberg analyst Kai Klose claims. The business models of Vonovia, LEG, and TAG remain stable. For now, the era of large-scale sell-offs appears to be over – only LEG might still have some catching up to do, notes Klose.

Renting out residential properties remains a steady business. If interest rates fall further, the situation should ease even more, explain experts. But even that isn’t guaranteed. Given the German government’s investment package and trade policy uncertainties, central banks are likely to remain cautious: „And until then, everything remains in limbo“, says Klose.

Falling interest rates won’t be a cure-all for the office sector, though. „A strong rebound is not expected here anytime soon“, comments Warburg analyst Simon Stippig. So far, few major transactions have occurred, and leasing activity remains sluggish. „And many developers have gone bankrupt.“ Even in top cities like Frankfurt, vacancies are rising. Real estate firm Savills found that office vacancy rates in Q1 2024 averaged 7.1% – up 60 basis points from the previous quarter. In Frankfurt, the rate rose from 11.1% to 12.3%. While overall office space turnover in top German cities increased slightly in 2024, it remains 21% below the 10-year average.

The numbers also show a decline in large-scale leases, with a shift toward space efficiency. „In the large-space segment, it’s no longer about expansion, but about optimisation“, explains Jan-Niklas Rotberg, Managing Director and Head of Office Agency Germany at Savills. Companies are consolidating locations and adjusting space both qualitatively and quantitatively. The aim is often to strengthen corporate culture. In the era of hybrid work, companies are trying to lure employees back to the office with more attractive locations. In other words: alongside economic uncertainty, remote work has fundamentally altered the market – and it looks like that won’t change anytime soon.

Asset managers on Ken Zipse’s team at Berenberg are also feeling the shift in their daily work. They’re restructuring floorplans, dividing rental units, and finding multiple tenants for a single space. „The amount of space tenants are looking for has dropped significantly – mainly because not all employees come to the office every day anymore.“ And prices? „The price discounts on office properties are sometimes dramatic.“ Zipse cites discounts of 30 to 40% compared to peak levels before interest rates began to climb.

„The longer rates stay high, the greater the pressure on the industry“, says Zipse. Open-ended property funds must plan carefully when to sell to maintain liquidity. Developers must pour more money into interim financing for quality buildings they don’t want to offload cheaply. There’s „real pressure in the pipeline“ for office properties – unless they’re in prime locations. Still, Zipse sees this as a good entry point for new investors.

One company for which office property trends are especially relevant is Aroundtown. Roughly one-third of the Luxembourg-based company’s portfolio consists of office buildings, with the remainder spread across hotels and residential properties. At its annual press conference in March, the company announced further asset sales to continue stabilising its balance sheet. But Aroundtown isn’t primarily selling office assets – but those currently fetching good prices.

Selling office properties right now can be tough. „Banks are hesitant to finance vacant office buildings in secondary locations“, notes Christian Alpers of Falkensteg. While distressed sales aren’t necessarily increasing, another trend suggests market instability: the rise of open bidding processes. „Especially in the current market phase – with falling prices, regulatory uncertainty, and tighter financing conditions.“ A recent example: a building in Frankfurt-Fechenheim was offered in an open bidding process. Around 20 potential buyers showed up. The property? A large, brown box of offices – far from the charm of modern buildings. At the time of sale, 60% of the space was vacant. After viewing, everyone could place a bid.

The situation is especially tough for institutional investors, states Alpers: „Many properties were bought at inflated prices.“ Those not forced to sell are better off waiting it out – until 2026 or even later.