Quarter on quarter, vdp index shows slight price increases across the board

The stabilization of German property prices observed since the beginning of the year continued in the third quarter of 2024. Standing at 177.3 points, the property price index of the Association of German Pfandbrief Banks (vdp) exceeded the figure for the previous quarter by 1.0%. Compared with the third quarter of 2023, however, the price index was still down by 1.0%. vdpResearch has calculated the vdp index each quarter since 2010 based – unlike other price indices – on an analysis of actual property transaction data collected from more than 700 credit institutions. In this way, the index tracks price developments on the entire German market for residential, office and retail properties.

The increase in property prices in Germany was driven by residential property prices, which were up by 1.1% compared with the immediately preceding quarter (Q3 2024 against Q2 2024). Year on year (Q3 2024 against Q3 2023), on the other hand, residential property prices were still down slightly by 0.2%.

The trend for commercial property prices, which is to say office and retail property prices, again proved to be quite significant, with prices 4.7% lower than in the third quarter of 2023. However, commercial properties experienced an overall increase of 0.7% from the second to the third quarter of this year.

“Still too early to speak of the start of a lasting property market upturn.”
Jens Tolckmitt

“For the second consecutive quarter, property prices are following a positive trend compared with the immediately preceding quarter,” vdp Chief Executive Jens Tolckmitt pointed out. “Recent property price developments in Germany are a ray of light in an otherwise rather challenging geopolitical and macroeconomic environment, both nationally and internationally. Given these overall conditions, too, we believe it is still too early to speak of the start of a lasting property market upturn. Only the development of the index over the coming quarters will shed light on how robust the current market stabilization actually is.”

Residential properties: multi-family house prices rise year on year

The increase in residential property prices by 1.1% overall against the second quarter of 2024 was driven somewhat more strongly by price growth for multi-family houses (+1.3%) than for owner-occupied homes (+0.8%). Comparison with the third quarter of 2023 presents a different picture. Whereas prices for multi-family houses rose marginally here, too (+0.2%), prices in the owner-occupied housing sector, which is to say single-family houses and condominiums, were down slightly (-0.6%) year on year. Both developments together ultimately resulted in a minimal drop in residential property prices as a whole (-0.2%) between the third quarter of 2023 and the third quarter of 2024.

Rents under new contracts for multi-family houses rose again in the quarter under review, reflecting the persistent housing shortage in Germany. The rate of growth came to +0.7% on the quarter and +5.6% on the year. Returns on rental properties as measured by the vdp index for cap rates grew by 5.3% year on year. However, this was the smallest increase in returns since the third quarter of 2022.

“The situation on the housing market continues to worsen.”
Jens Tolckmitt

“Housing is already far too scarce. Nevertheless, month for month, fewer and fewer building permits are being reported, and building completions are languishing at much too low levels. The situation on the housing market continues to worsen,” Tolckmitt emphasized and, despite the current government crisis, he appealed to Germany’s political actors: “We urgently need decisive measures that will stimulate housing construction quickly and recognizably. These decisions must not be delayed any longer.”

Housing in top 7 markets: rents under new contracts and returns clearly on the rise

The development of residential property prices throughout Germany hardly deviated from the rates of change in the top 7 cities. In the third quarter of 2024, prices of residential properties in the seven metropolises went up by an average of 1.1% against the immediately preceding quarter. By comparison, they were still minimally lower (-0.1%) year on year.

Whereas prices moved up in all seven metropolises from the second to the third quarter of 2024 – most strongly in Frankfurt am Main (+1.6%) as well as in Düsseldorf and Munich (+1.5% in each case) – the trend in prices was mixed year on year. Prices in Cologne (+1.4%), Berlin (+0.4%) and Frankfurt am Main (+0.1%) increased, while those in Munich (-1.7%), Düsseldorf, Stuttgart (-1.5% in each case) and Hamburg (-0.2%) contracted.

By contrast, rents under new contracts for multi-family houses saw a marked increase across all top 7 cities (+4.6% on average), with the strongest growth reported for Berlin (+5.4%).

Among Germany’s top 7 cities, returns grew most strongly in the third quarter of 2024 in Stuttgart (+5.4%), closely followed by Munich (+5.3%), Berlin
(+5.2%) and Düsseldorf (+5.1%). The average rise in returns for the top 7 cities came to 4.7%.

Commercial properties: offices and retail premises see similar development

In the third quarter of 2024, too, the downturn phase in the property market had a considerably more significant impact, year on year, on commercial properties than on residential properties. Compared with the third quarter of 2023, commercial property prices fell by 4.7% amidst continuing moderate market activity. Prices in both sectors (-4.8% for offices and -4.5% for commercial premises) followed a fairly similar path.

Compared with the immediately preceding quarter, commercial property prices picked up on the whole by 0.7%. This was mainly attributable to rising prices for office properties (+0.8%). Retail property prices, on the other hand, increased only slightly (+0.3%).

As in the previous quarters, the vdp cap rate index measured a noticeable increase in returns, both for offices and for retail properties. Compared with the third quarter of 2023, returns for office and retail properties advanced by 6.9% and 8.1% respectively. Rents under new contracts likewise continued to rise in the quarter under review, achieving rates of change of +1.8% for offices and +3.3% for retail premises year on year.

Outlook: into 2025 with a stronger tailwind

“The situation in the German property market has eased appreciably in the course of this year. Nevertheless, it is still too early to sound the all-clear,” Tolckmitt emphasized. He warned that, particularly for commercial properties, the current development is as yet no more than a first indication of an end to the two-year decline in prices and the entry into a possible sideways movement.

“In view of economic developments and geopolitical risks, setbacks still cannot be ruled out.”
Jens Tolckmitt

“Only when the transaction numbers and financing volumes continue to climb substantially in all asset classes will the downturn phase be fully overcome. The present trend makes this scenario a possibility in the coming year,” Tolckmitt commented. At the same time, however, he pointed to the many uncertainty factors, first and foremost economic developments in Germany and the ongoing geopolitical risks. He went on to say that, against this backdrop, setbacks in price growth still cannot be ruled out. Nevertheless, Tolckmitt concluded on an optimistic note: “In any event, we will start 2025 with a stronger tailwind than we did in 2024.”

New lending by vdp member banks rises by 15.6% in the second quarter

In the second quarter of 2024, the banks which together make up the Association of German Pfandbrief Banks (vdp) extended property loans totalling EUR 31.2 bn – an increase of 15.6% compared with the second quarter of 2023 (EUR 27.0 bn). With that, for the third quarter in succession, the volume of new lending exceeded the corresponding quarters one year earlier in each case, and reached the highest figure since the third quarter of 2022 (EUR 39.4 bn). From the beginning of 2024 to mid-year, real estate lending totalled EUR 58.2 bn, which is equivalent to growth of 10.2% compared with the first half-year of 2023 (EUR 52.8 bn).

This positive trend in new lending activity was driven by residential property financing, the volume rising by 33.1% to EUR 20.1 bn between the second quarter of 2023 and the second quarter of 2024 (Q2 2023: EUR 15.1 bn). In the first half-year of 2024, total lending for the construction and purchase of residential properties came to EUR 37.9 bn. This was 19.6% up on the corresponding period one year earlier (H1 2023: EUR 31.7 bn). By contrast, commercial property loans totalled EUR 11.1 bn in the second quarter of 2024 and EUR 20.3 bn in the first half-year of 2024. This was a decrease of 6.7% and 3.8% respectively compared with the corresponding quarter and half-year one year earlier (Q2 2023: EUR 11.9 bn; H1 2023: EUR 21.1 bn).

“The growth in total lending reflects how demand for residential properties is again rising significantly.” Jens Tolckmitt

“For the first time since autumn 2022, total property financing in one quarter is above EUR 31 bn. We had already seen signs of a property financing recovery in the first quarter of this year, and now it is solidifying,” remarked vdp Chief Executive Jens Tolckmitt. “Our recently published vdp index figures on price developments likewise indicate that the two-year downturn on the German property market is coming to an end. The residential property market in particular is already benefitting from the interest rate and price environment, which has become more stable in the meantime, and the adjusted returns. Given these general conditions, demand for residential properties is rising significantly. The growth in total lending is a reflection of this development.”

Residential property financing: growth in all segments

Of the total volume of residential property loans extended (EUR 20.1 bn), almost half (EUR 9.5 bn) was accounted for by new lending for one-and two-family houses (share: 47.3%). Compared with the second quarter one year earlier, this market segment grew in the second quarter of 2024, namely by 25.0%, as did loans for condominiums (+38.7%) and for multi-family houses (+57.6%). Comparing the first half of 2024 with the first half of 2023, financing for one- and two-family houses rose by 24.2%, condominiums by 37.9% and multi-family houses by 2.2%.

Commercial property loans: increased volume for retail properties

In contrast to new residential property financing, new commercial property loans extended did not yet experience a recovery in the second quarter of this year.    Total new lending of EUR 11.1 bn was made up of loans for office properties (EUR 5.0 bn), retail properties (EUR 3.7 bn), hotel properties (EUR 0.6 bn) as well as other commercial buildings (EUR 1.8 bn). Whereas lending for retail properties and other commercial buildings rose considerably compared with the previous year on both a quarterly and a half-yearly basis, lending volumes for offices and hotels fell markedly.

Property financing portfolio remains above EUR 1,000 bn

The portfolio of property loans extended by the vdp member banks amounted to EUR 1,007.2 bn as at 30 June 2024. This was slightly higher than the immediately preceding quarter (31 March 2024: EUR 1,003.5 bn). Properties located in Germany accounted for by far the greater part of the financing volume (around 87%).

vdp index still in decline year on year; for the first time, slight increase again recorded quarter on quarter

The downward movement that has characterized property prices in Germany for just under two years was halted in the second quarter of this year. The property price index of the Association of German Pfandbrief Banks (vdp) achieved a score of 175.5 points, and thus was 0.5% above the level recorded in the first quarter of 2024. The index value was still lower (-3.8%) compared with the second quarter of the previous year. vdpResearch has calculated the vdp index each quarter since 2010 based – unlike other property indices – on an analysis of actual property transaction data collected from more than 700 credit institutions. In this way, the index tracks price developments on the overall German market for residential, office and retail properties.

Like the overall index, the index for residential property prices recorded a slight increase of 0.5% quarter on quarter (Q2 2024 against Q1 2024). Year on year (Q2 2024 against Q2 2023), on the other hand, residential property prices were down by 2.9%.

A more significant price correction (-7.4%) was again seen year on year in commercial property prices, which is to say prices for office and retail properties. However, they likewise rose slightly (+0.4%) from the first to the second quarter of this year.

“Achievable returns are apparently again in keeping with investors’ expectations.” Jens Tolckmitt

“After property prices in Germany have fallen persistently for almost two years, we are now seeing signs that the market is calming down. Prices appear to have adjusted to such an extent in the meantime that the achievable returns are in keeping with investors’ expectations in the new interest rate and valuation environment,” vdp Chief Executive Jens Tolckmitt stated. Nevertheless, he does not think property prices will rise appreciably in the short term. “We expect the emerging sideways movement to continue for several quarters. Uncertainty factors with regard to future price developments are the current, further heightened risk of geopolitical conflicts spreading and the subdued economic activity in Germany at present.”

Residential properties: rents under new contracts for multi-family houses continue to rise

For the first time since the second quarter of 2022, residential property prices did not fall quarter on quarter, but instead proved to be practically stable, rising slightly by 0.5%. Here, prices for multi-family houses and owner-occupied housing went up by 0.5% in each case between the first and second quarter of 2024.

Prices in both sectors also followed an almost parallel trajectory year on year, albeit with a negative sign. Whereas prices for multi-family houses fell by 2.8% compared with the second quarter one year earlier, prices for single-family houses and condominiums dropped by 3.0%. Both these developments contributed to a 2.9% decrease in residential property prices overall between the second quarter of 2023 and the second quarter of 2024.

Rents under new contracts for multi-family houses continued to rise in the second quarter of this year, increasing by 6.1% year on year and 1.4% quarter on quarter. Returns on rental properties as measured by the vdp index for cap rates rose by 9.2% between the second quarter of 2023 and the second quarter of 2024. With that, growth in returns slowed down somewhat for the third consecutive quarter (Q1 2024: +10.8% / Q4 2023: +12.9% / Q3 2023: +13.5% –> compared with the corresponding quarter one year earlier in each case).

“Only policymakers can solve the dilemma of the growing housing shortage.”Jens Tolckmitt

“The housing shortage in Germany is currently intensifying from month to month, especially in the metropolitan regions, with the inevitable consequence that rents continue to rise. This poses a growing social challenge. Only policymakers can solve this dilemma. Although the recently presented draft amendment to the Federal Building Code points in the right direction, it will not be enough to curb the rising shortage of housing space,” Tolckmitt commented. He explained that an even more extensive raft of wide-ranging measures is needed. In addition, the obvious conflict of objectives between the creation of affordable housing and the costly sustainable transformation of the building stock must be resolved. “Measures to facilitate the affordability of housing are being thwarted by the simultaneous demand that strict and cost-intensive sustainability requirements for buildings are met.”

Housing in top 7 markets: prices in Cologne are most resilient

Residential property prices in Germany’s top 7 cities fell slightly less heavily (-2.5% on average) than in Germany as a whole (-2.9%) year on year. The individual rates of change varied from -1.6% in Cologne to -4.7% in Munich.

Compared with the first quarter of 2024, residential property prices developed unevenly in Germany’s major cities. Whereas they contracted slightly in Düsseldorf (-0.5%), Munich (-0.4%) and Stuttgart (-0.2%), they rose in Frankfurt am Main (+0.5%), Hamburg (+0.6%), Cologne (+1.1%) and Berlin (+1.2%). On average, prices across all top 7 cities were up by 0.7% compared with the immediately preceding quarter.

Once again, Berlin experienced the highest year-on-year increase in rents under new contracts for multi-family houses (+6.9%), followed by Frankfurt am Main (+5.1%) and Munich (+4.5%). Across all top 7 cities, growth in rents under new contracts amounted to 5.5% on average.

The highest increase in returns (+9.7%) was again recorded in Munich, followed by Berlin (+8.9%), Stuttgart (+8.5%) and Düsseldorf (+8.4%). The average growth in returns across Germany’s top 7 cities came to 8.3%.

Commercial properties: price level maintained quarter on quarter

In the quarter under review, the downturn again affected the commercial property market more strongly than the residential property market. Compared with the second quarter of 2023, commercial property prices fell by 7.4%, whereby the drop in prices for office properties (-7.9%) was more pronounced than the price correction for retail properties (-5.9%).

By contrast, commercial properties were able to maintain their price level quarter on quarter. The rate of change between the first and second quarter of 2024 was +0.5%, and accounted for growth in office property prices (+0.3%) and retail property prices (+0.7%).

As measured by the vdp cap rate index, office and retail properties again generated considerable increases in returns in the quarter under review. Year on year, returns for office and retail premises rose by 10.9% and 9.6% respectively. The increase in rents under new contracts for retail properties (+3.1%) was somewhat higher than for offices (+2.1%).

Outlook: potential for further setbacks limited in the meantime

“The situation in the commercial property market remains tense. Transactions and turnover are still at below-average levels. Nevertheless, we are seeing growing signs that the downturn in the commercial property market is losing momentum,” Tolckmitt pointed out. He added that future price developments will depend on the extent to which the stagnation the German economy has now entered combined with the gloomy sentiment among businesses weigh on the real estate industry.

“There are signs that the difficult situation is easing.” Jens Tolckmitt

In conclusion, the vdp Chief Executive looked to the future: “After a downturn lasting two years, the potential for further setbacks now seems to be limited.” Tolckmitt added that, given the current external risk factors such as geopolitics and economic growth, the possibility of renewed setbacks in the coming quarters cannot be entirely ruled out. However, the already discernible sideways movement in property prices will manifest itself in the trend over the next year – more quickly for residential properties than for commercial properties. “It is still much too early to declare a trend reversal, but there are signs that the difficult situation is easing.”

Changes focus on criteria for eligible assets

The Association of German Pfandbrief Banks (vdp) has, together with the issuers of Green Pfandbriefe, updated the Minimum Standards for Green Mortgage Pfandbriefe and Green Public Pfandbriefe. The amendments to the Minimum Standards will come into force with effect from 1 January 2025, with member banks free to apply them before that date should they so wish. The Minimum Standards in the version in force on the issuance date in each case will apply to Pfandbrief issues already outstanding.

The most important changes to the Minimum Standards for Green Mortgage Pfandbriefe concern the criteria for eligible assets:

In the case of new construction financing, the property will in future have to have a primary energy requirement of at least 10% below the national standard for nearly zero energy buildings (NZEB). Up until now, it has been sufficient for the property to comply with statutory energy standards for new buildings.

When financing existing residential properties, it must in future be possible to assign the residential property to at least energy efficiency class A. Up until now, energy efficiency class B or better has been sufficient.

The criterion that the commercial property can be assigned to at least energy efficiency class A will also be added for the financing of existing commercial properties.

In addition, a number of formal changes will be made to the framework. The amendments to the Minimum Standards for Green Public Pfandbriefe will merely serve to harmonise the wording with that of the standards for Green Mortgage Pfandbriefe, but will not affect the definition of eligible assets, i.e. the content.

“By updating the Minimum Standards, the requirements that green cover assets must meet will be more closely aligned with the EU taxonomy.” It is not possible, nor is it planned in the foreseeable future, to gear them to all requirements of the taxonomy due to the complexity, the lack of practicability and the insufficient transformation concept of the taxonomy criteria, Sascha Kullig, member of the vdp’s Management Board, commented.

Pleasing development on the market for Sustainable Pfandbriefe

The market segment for Sustainable Pfandbriefe has seen a positive development since the first issue was placed by a vdp member bank in 2014. So far, 14 Pfandbrief banks have Green and Social Pfandbriefe outstanding with a total volume of EUR 28.5 billion. Of this, Green Pfandbriefe account for EUR 23.6 billion and Social Pfandbriefe for EUR 4.9 billion. Thus, Sustainable Pfandbriefe currently make up just over 7% of the total volume of outstanding Pfandbriefe. By comparison, they today represent a share of around 20% of newly issued Pfandbriefe in benchmark format (at least EUR 500 million).

 “The pleasing growth seen in the segment for Sustainable Pfandbriefe demonstrates, moreover, how successful market-oriented models can be if they promote practicable sustainable financing and offer investors the investment opportunities they are looking for,” said Kullig

After strong start to the year, capital market experts expect greater investor reticence in second half of 2024

The sentiment with regard to sales of Pfandbriefe and unsecured bank bonds has brightened significantly in the last six months, according to the results of the fourth survey conducted by the Association of German Pfandbrief Banks (vdp) among its member banks’ capital market experts. Although the scores for Pfandbriefe and unsecured bank bonds developed positively, they remain in slightly negative territory for both asset classes.

Compared with the December 2023 survey results, the sentiment values in early summer proved to be significantly better. Thus, the capital market experts awarded 45 points for investor demand both over the last six months and at the current margin. By contrast, a score of only -3 points was calculated for expected demand in the coming six months. The hitherto strong demand for Pfandbriefe is also reflected in the score of currently 43 points for the over-subscription level for Pfandbriefe, while the score for the next six months is 11 points.

The results of the survey, which is conducted twice a year, are published under the heading “vdp Issuance Climate”. The sentiment indicator ranges from -100 to +100 points, and currently shows only a slightly gloomy sentiment with a score of -12 points. There is very little difference between the scores for Pfandbriefe (-11) and unsecured bank bonds (-14). Compared with the December 2023 survey, the overall score improved by 10 points, with the individual score for Pfandbriefe up by 12 points and the individual score for unsecured bank bonds up by 7 points.

Scoring                                     June 2024      Dec. 2023      June 2023
Score for Pfandbriefe:                         -11           -23            -14
Score for unsecured bank bonds:     -14           -21            -29
Overall score:                                      -12           -22            -21

The main driver of the slightly negative scores is the general trend in interest rates (-53 points after -24 points in December 2023). Expectations of lower yields are again likely to lead to a certain degree of reticence among investors going forward. In this context, the influence of the lending business to be refinanced remains well in negative territory at -32 points. The capital market experts surveyed expect the weak demand for property finance to continue to put a damper on the lending business to be refinanced over the next six months. That said, there is a 21-point improvement compared with the December 2023 survey. The capital market experts likewise take a less negative view than in December 2023 (-24 points) of the general rating trend for the banking sector. The corresponding score has improved by 15 points to currently -9.

Market for unsecured bank bonds expected to cool down

For the last six months and the present, the vdp member banks reported strong and very strong investor demand respectively for unsecured bank bonds. A score of 29 points was calculated for the last six months, and a current score of 48 points. Given that the spreads on unsecured bank bonds have fallen heavily in the meantime, the score of -32 points shows that experts are considerably more skeptical about their expectations with regard to investor demand in the coming six months.

“The increase in interest rates and the attractive spreads versus Bunds and swaps led to very strong demand for Pfandbriefe in the first five months of the new year. It is pleasing to note that longer-dated Pfandbriefe, which are important for long-term property financing, were again in good demand,”

said Sascha Kullig, Management Board member at the vdp, to sum up the developments of the past six months.

Good start to the new year for Pfandbrief market

In the first five months of 2024, the vdp member banks issued Pfandbriefe with a total volume of just under EUR 30.1 billion. This is nearly 10% above the volume placed in the corresponding period one year before. Of the new Pfandbriefe issued, Mortgage Pfandbriefe accounted for EUR 23.0 billion and Public Pfandbriefe for EUR 6.6 billion. Compared with the corresponding period one year before, this represents an increase of 3% for Mortgage Pfandbriefe and 26% for Public Pfandbriefe. In addition, Ship Pfandbriefe were placed with a volume of EUR 500 million (corresponding period one year before: zero).
It was noticeable that investors again added a substantial volume of longer-dated Pfandbriefe to their portfolios. The vdp considers this to be a reflection of the fundamental trust that investors have in the outstanding quality of the German Pfandbrief.

We have seen considerable improvements in most drivers of demand. It is not surprising that, following the strong first five months of 2024, somewhat more investor reticence is again expected,” said Kullig.

Methodology

Each survey comprises an assessment of the past six months, the current situation and the coming six months, with the latter being weighted most heavily in the evaluation. These assessments determine separate scores for Pfandbriefe and unsecured bank bonds, as well as an overall score. A score of 0 points corresponds to a stable capital market environment in which issuance plans can be carried out without any problems. Negative scores (maximum -100) indicate that the issuance environment is less favourable than average, and positive scores (maximum +100) that it is more favourable than average.

The vdp Issuance Climate survey provides information twice a year on the sentiment among the members of the Association of German Pfandbrief Banks (vdp) with regard to the placement of Pfandbriefe and unsecured bank bonds. To assess this sentiment, experts from the vdp member banks are asked about the factors influencing Pfandbrief and unsecured bank bond sales. Each survey covers the past six months, the current situation and the coming six months, with the latter being weighted most heavily in the evaluation. 

The responses are grouped together by subject area, providing an overview of the supply and demand situation on the markets for Pfandbriefe and unsecured bank bonds. Three scores are then calculated based on certain assumptions about the relative importance of each subject area: one score each for Pfandbriefe and unsecured bonds, as well as an overall score. A score of 0 points corresponds to a stable capital market environment in which issuance plans can be carried out without any problems. Negative scores indicate that the issuance environment is less favourable than average, and positive scores that it is more favourable than average. 

The Pfandbrief banks belonging to the vdp hold a market share of almost 96% of outstanding Pfandbriefe.

Covered bond expert assumes responsibility for Sustainable Finance

With effect from 1 July 2024, Sabrina Miehs leaves Helaba Landesbank Hessen-Thüringen to join the Association of German Pfandbrief Banks (vdp), where she will take on a cross-sectional function as Senior Manager. On the one hand, her responsibilities will include the field of Sustainable Finance, which is headed by Management Board member Sacha Kullig. On the other, she will collaborate with the vdp’s office in Brussels, strengthening the Association’s activities at the European level.

“We are delighted to have won Ms Miehs for the vdp,” Jens Tolckmitt, the vdp’s Chief Executive, remarked. “With her many years of experience and her great expertise she will strengthen our team – particularly, though not only, in the broad range of issues that Sustainable Finance entails. In addition, she will represent the Pfandbrief Banks in key topics of theirs vis-à-vis the European institutions in Brussels and Paris, where important projects such as the creation of the capital markets union, the revision of the Covered Bond Directive and the further development of ESG regulation will be on the agenda following the European elections,” Tolckmitt explained.

Most recently, Miehs (49) worked as Senior Advisor in the Sustainable Finance Advisory team at Helaba Landesbank and was in charge of FI & SSA Research. Starting in 2013, she built up Helaba’s Covered Bond Research arm. Before joining Helaba she spent ten years at Standard & Poor’s, initially as Rating Analyst for European securitizations. Subsequently she was Covered Bond Rating Analyst as well as Head of the German and Deputy Head of the European Covered Bond team. During that time she played an active role in, amongst other things, the development of rating methodologies.

“Having been involved in Pfandbrief-relevant matters while spending many years with institutions, I am pleased I will now be directly involved in shaping the future development of this important refinancing product at the vdp,” Miehs commented. “I am especially looking forward to my work in Berlin and Brussels, and to representing the interests of the Pfandbrief Banks in dealings with the European Commission, the European Parliament and the EBA.”

vdp promotes Annett Wünsche and Dr Tim Lassen to expanded management team

Following the departure of its long-standing Managing Director Dr Otmar Stöcker, who has gone into retirement, the Association of German Pfandbrief Banks (vdp) has established a new management structure with effect from 1 June 2024.  Department Head Annett Wünsche and Deputy Department Head Dr Tim Lassen have been appointed as new members of the expanded management team. They will work alongside Sascha Kullig, who has been a Management Board member since mid-2020. Operational responsibility for the vdp’s Head Office rests with Chief Executive Jens Tolckmitt.

Wünsche will oversee the departments Real Estate Market and Domestic Real Estate Finance as well as Valuation, while Dr Lassen will take charge of Cover Assets. Kullig continues to head Capital Markets, Investor Relations and Sustainable Finance. Banking Supervision, Communications, IT, HR, Accounting remain the responsibility of Tolckmitt, as does the vdp’s Brussels Office.

“The expanded management team puts the vdp in an ideal position to continue its successful path.” Gero Bergmann

“We are delighted that we can fill the two posts in the expanded management team from our own ranks. Ms Wünsche and Dr Lassen are highly experienced in their respective fields, and our Association has already benefitted from their many valuable impulses. Their new functions give them even greater responsibilities, and will enable them to work jointly with Mr Tolckmitt and Mr Kullig in representing our member banks’ interests in a committed and target-oriented way,” vdp President Gero Bergmann pointed out. “The new management structure puts the vdp in an ideal position to continue its successful path, to develop further, and to master the many challenges that the regulatory environment throws up for the Pfandbrief banks.”

Tolckmitt added: “I look forward to working even more closely with Ms Wünsche and Dr Lassen in future. Together with Mr Kullig, we make an experienced and strong management team.”

Wünsche (45) has been with the vdp since 2007, performing various specialist and management tasks. Most recently she was responsible, as Department Head, for all matters concerning property valuation for lending purposes in Germany and abroad, with a particular focus on banking regulation. Before joining the vdp, the industrial engineer spent a number of years in urban regeneration and project development. She is a regular speaker at specialist conferences and one of the team of lecturers helping candidates prepare for the certification examination HypZert (MLV).

Dr. Lassen (56) has worked with the vdp since April 2023, first as Senior Manager in the department Legal Affairs / Cover Assets and, since the beginning of 2024, as Deputy Department Head. Prior to that, he was in-house lawyer with the VDH, the vdp’s predecessor association, from 1998 until 2005, where he was involved, amongst other things, in drawing up the Pfandbrief Act. Dr Lassen subsequently moved to Eurohypo AG, at that time the largest vdp member bank, and in the following years carried out various specialist and management functions in Germany and abroad. He then held various management positions while working for an international financial and industrial holding company in Moscow. Dr Lassen is the author of numerous publications on mortgage and covered bond law in Europe. For many years he has been a member of the think tanks “Round Table Covered Bond Legislation” and “Round Table on Security Rights over Real Property”, both of which the vdp initiated.

Volume of new lending by vdp member banks rises by 4.7%

The volume of real estate financing provided by the banks which together make up the Association of German Pfandbrief Banks (vdp) came to EUR 27.0 billion in the first quarter of 2024. The slight increase of 4.7% against the corresponding quarter one year earlier and of 3.1% against the immediately preceding quarter resulted, above all, from stronger lending activity for the construction and purchase of residential properties.

Residential property loans totalled EUR 17.8 billion. This was 7.2% higher year on year and 17.1% higher quarter on quarter. With that, residential property financing recorded its best quarterly result since the third quarter of 2022 (EUR 22.1 billion).  New lending was still a long way from the level reached during the zero-interest phase, however. The volume of commercial property loans was unchanged year on year at EUR 9.2 billion.

“Residential property financing is sending positive signals.” Jens Tolckmitt

“New lending has consistently totalled between EUR 15 and 18 billion for six quarters. Our current figures point to an easing in this business segment. Residential property financing is sending positive signals. The financial scope of private households is benefitting from rising real wages and stable loan interest rates. Rents under new contracts continue to increase given the excess demand for housing. This is again making home ownership look more attractive,” remarked vdp Chief Executive Jens Tolckmitt. Institutional investors, on the other hand, remain reticent. Accordingly, the financing of rental housing and commercial properties got off to a restrained start in 2024. Nevertheless, thanks to the likelihood of a positive development for residential property loans, we expect the vdp member banks’ property financing business as a whole to grow compared with 2023.”

New residential property lending: some segments see double-digit growth

Total residential property lending, which rose by 7.1% to EUR 17.8 billion between January and March 2024, was made up of new loans for one- and two-family houses (EUR 9.0 billion), condominiums (EUR 3.7 billion), multi-family houses (EUR 4.0 billion) and other residential properties (EUR 1.1 billion). Growth was primarily driven by an upturn in financing for owner-occupied homes (owner-occupied houses and condominiums), whereas the lending volume for multi-family houses was down both year on year and quarter on quarter.

Sideways movement in commercial property loans

The volume of new commercial property lending in the first quarter of 2024 was on a par with the corresponding period one year earlier and was again dominated – in keeping with the traditional meaning – by loans for office properties, which accounted for a volume of EUR 5.5 billion or a share of around 60%. Compared with the first quarter of 2023, loan commitments for office properties expanded by 19.6%, and contracted by 1.8% compared with the immediately preceding quarter. The lending volume for retail properties fell both year on year and quarter on quarter by 29.6% to EUR 1.9 billion (Q1 2023 and Q4 2023: EUR 2.7 billion in each case). The volumes for hotels, industrial buildings and other commercial properties amounted to EUR 400 million, EUR 300 million and EUR 1.1 billion respectively between January and March of this year.

Property financing portfolio at roughly end-2023 level

As at 31 March 2024, the portfolio of real estate loans extended by the vdp member banks totalled EUR 1,003.5 billion, almost equalling the level recorded as at end-2023 (EUR 1,004.1 billion).

Members’ Meeting elects Henrietta Six, Thorsten Schönenberger and Ljubisa Tesić as new members of the vdp Board of Directors

Gero Bergmann, Member of the Board of Management of BayernLB, will remain the vdp’s President for a further two years. He was re-elected at the 19th Members’ Meeting of the Association of German Pfandbrief Banks (vdp) in Frankfurt am Main yesterday. Bergmann has held this position since June 2023. He joined the vdp Board of Directors in 2021.

“I am very pleased to have received the confidence of the member banks,” Bergmann declared. He went on to say that managing the ongoing downswing on the property market and the excessive regulation are the current challenges that he, together with the vdp Board of Directors, will tackle during the next period of office. “Before even more measures are adopted that place a burden on banks’ capital, a review of the consistency and target orientation of the many measures already in place is more than overdue. We are calling for an immediate moratorium on regulation.” Moreover, Bergmann pledged that the Association will remain committed to ensuring that the vdp‘s core product, the Pfandbrief, can continue to hold its own against other forms of refinancing.

The regular election of the vdp’s Board of Directors for a new two-year office term was also held at this year’s Members’ Meeting. Ten members were re-elected. Due to their recent and imminent retirement respectively, Dr Jürgen Kullnigg, Member of the Managing Board of UniCredit Bank GmbH, and Christian Bonnen, Member of the Board of Managing Directors of Kreissparkasse Köln, did not stand again for election. Nor Dr Christian Ricken, Member of the Board of Managing Directors of LBBW, stand for re-election in view of his forthcoming move to Aareal Bank.

Henrietta Six, Member of the Management Board of Stadtsparkasse Düsseldorf, Thorsten Schönenberger, Member of the Board of Managing Directors of LBBW, and Ljubisa Tesić, Member of the Managing Board of UniCredit Bank GmbH, were elected as new members of the Board of Directors.

The vdp Board of Directors now has the following members:

• Gero Bergmann (strong)
  BayernLB

• Sabine Barthauer
  DZ HYP

• Dr Matthias Danne
  DekaBank

• Marc Oliver Heß
  Aareal Bank

• Dr Holger Horn
  MünchenerHyp

• Hans-Dieter Kemler
  Helaba

• Sascha Klaus
  BerlinHyp

• Thomas Köntgen
  Deutsche Pfandbriefbank

• Dr Bettina Orlopp
  Commerzbank

• Matthias Schellenberg
  ApoBank

• Thorsten Schönenberger
  LBBW

• Henrietta Six
  Stadtsparkasse Düsseldorf

• Ljubisa Tesić
  UniCredit Bank GmbH
• Jens Tolckmitt
  vdp, CEO
  (Member of the Board of Directors qua office)

vdp index shows price decline of 5.3% for the year

The adjustment process in German property prices continued in the first quarter of this year. The property price index of the Association of German Pfandbrief Banks (vdp) reached 174.7 points. This was 5.3% below the level calculated across all property classes year on year and 0.3% below the level for the previous quarter. Compared with the highest index score to date, reached in the second quarter of 2022, the price correction amounts to 10.3% in the meantime. vdpResearch has calculated the vdp index each quarter since 2010 based – unlike other property indices – on an analysis of actual property transaction data collected from more than 700 credit institutions. In this way, the index tracks price developments on the overall German market for residential and commercial properties, quarter for quarter.

In the first quarter of this year, residential property prices shed 4.3% year on year (Q1 2024 against Q1 2023). Compared with the immediately preceding quarter (Q1 2024 against Q4 2023), the decline amounted to 0.2%. Since the record level achieved in the second quarter of 2022, residential property prices in Germany have fallen by 8.6% to date.

Prices for commercial properties saw a considerably stronger adjustment year on year (-9.6%) than residential properties. Between the second quarter of 2022, when prices reached their highest level to date, and the first quarter of 2024, commercial property prices dropped by 17.2%. The change in prices came to -0.8% between the closing quarter of 2023 and the first quarter of 2024.

“As yet no sign of commercial property prices bottoming out.” Jens Tolckmitt

“The development of prices confirms our prediction that prices will continue to fall – for commercial properties more heavily than for residential properties.”  A quarter-on-quarter comparison indicates that residential property prices are already gradually stabilising, vdp Chief Executive Jens Tolckmitt commented. By contrast, there is as yet no sign of commercial property prices bottoming out. Although the downward momentum has slowed somewhat of late, this should not be over-interpreted given the continued low level of transaction activity.

Residential properties: multi-family house prices unchanged quarter on quarter

The 4.3% decline in residential property prices in the first quarter of 2024 was driven by the development of prices for both multi-family houses and owner-occupied housing. While prices of single-family houses and condominiums were down by a total of 3.9% year on year, prices for multi-family houses dropped by 4.7%. The price level for multi-family houses was unchanged compared with the immediately preceding quarter, whereas owner-occupied housing experienced further, slight price losses, narrowing by -0.4%.

Growth in rents under new contracts for multi-family houses at the beginning of the current year was similar to end-2023. After increasing by 5.8%, the annual rate of change last came to +5.6%. Returns as measured by the vdp cap rate index rose by 10.8% over the year. With that, growth in returns slowed down somewhat for the second consecutive quarter (Q4 2023: +12.9% / Q3 2023: +13.5%).

“Residential properties will remain in short supply in the longer term.”Jens Tolckmitt

Tolckmitt assessed the development in rents as follows: “The rental housing market is under immense pressure. Demand far outstrips supply. For this reason, rents continue to climb – albeit not quite as quickly as in the previous quarters.” Given that building completions still fall significantly short of the political targets, Tolckmitt remarked, residential properties will remain in short supply in the longer term – with corresponding consequences for the development of rents going forward.

Housing in top 7 markets: Slight price growth in Cologne on the quarter

In Germany’s top 7 cities, residential property prices decreased by 4.3% on average compared with the corresponding quarter one year before. This was in line with the overall market level. However, there were differences in the individual rates of change. The most resilient of the top 7 cities in the first quarter of 2024 were Cologne (-3.0%), Düsseldorf (-3.5%) and Stuttgart
(-3.6%). Whereas price corrections in Berlin and Frankfurt am Main were roughly in keeping with the average value, they were strongest in Hamburg (-4.9%) and Munich (-5.3%).

Quarter on quarter, the largest negative rates were recorded in Düsseldorf (-0.7%), Hamburg (-0.6%) and Stuttgart (-0.6%). By contrast, Cologne was the only top 7 city to show a slight uptick in prices (0.2%). The increases in top 7 rents under new contracts in the multi-family housing sector ranged from +2.7% (Stuttgart) to +5.2% (Cologne). The highest year-on-year increases in returns were generated in Berlin and Munich (+10.3% in each case). As an average for the top 7 cities, rents rose by 4.5%, yields by 9.4%.

Commercial properties: office prices down by just under 10%

The property market downswing that has persisted since mid-2022 is having the greatest impact on commercial properties, as price developments show. The 9.6% decline in commercial property prices compared with the corresponding quarter one year before was made up of price corrections in the office sector (-9.9%) and the retail sector (-8.9%). Compared with the immediately preceding quarter, prices in the first quarter of 2024 fell by 0.6% for offices and 1.5% for retail properties.

As in the fourth quarter of 2023, office and retail properties both recorded double-digit growth in returns year on year, as measured by the vdp cap rate index. Thus, yields on offices and retail properties grew by 14.2% and 13.4% respectively year on year, and by 1.3% and 2.6% respectively quarter on quarter.

Growth in rents under new contracts was likewise fairly uniform in both asset classes at the beginning of this year. Between the first quarters of 2023 and 2024, office and retail rents went up by 2.9% and 3.3% respectively. Rents increased by 0.7% and 1.1% respectively quarter on quarter.

Outlook: Commercial property market will remain difficult in 2024

“The commercial property sector is still going through a phase of structural challenges,” Tolckmitt emphasised. He added that, whereas the interest rate environment and the refurbishment requirements according to ESG criteria are having the same impact on both asset classes, individual trends also have to be considered in each case – on the one hand, the unclear consequences of the home office trend in the office sector and, on the other, the steadily growing importance of online retailing for the retail property market.

“We expect commercial property prices to decline further in the coming quarters, too.” Jens Tolckmitt

Looking ahead to the rest of this year, the vdp‘s Chief Executive emphasised: “Even though we believe that, as things stand today, the greater part of the interest rate-driven price corrections is behind us, we expect commercial property prices to decline further in the coming quarters, too.” Tensions on the commercial property market are likely to continue throughout 2024, he said, adding that the market situation is not expected to ease until the beginning of 2025.