German commercial property prices dip after fragile recovery, data show

By Tom Sims

FRANKFURT, Aug 10 (Reuters) - Commercial real estate prices in Germany declined in the second quarter, the VDP banking association said on Monday, reversing a fragile recovery in recent quarters after a rise in inflation and interest rates.

The setback follows five quarters of price gains that only partially made up for several years of steep drops in the wake of war in Ukraine, which set off Germany's worst property crisis in decades.

Like the war in Ukraine in 2022, this year's conflict in Iran and the Middle East have sparked inflation fears and higher interest rates, negative factors for the financing of commercial property.

Prices of offices and retail buildings fell 1% in the quarter from a year earlier, after a 0.5% annual gain in the first quarter, VDP's data showed.

By contrast, residential property prices clocked another gain in the quarter, though the pace slowed. Home prices rose 1.9% from a year earlier, after a 2.3% gain the first quarter.

"The commercial real estate market is reacting more strongly than the residential real estate market to geopolitical developments, rising inflation expectations, and interest rate trends," said Jens Tolckmitt, CEO of VDP.

The development mirrors a survey in July that showed that the mood among those financing commercial real estate in Germany plunged ​in the quarter.

"The future development of the commercial real estate markets depends, among other things, on whether and when the numerous geopolitical conflicts will be resolved," Tolckmitt said.

(Reporting by Tom SimsEditing by Linda Pasquini)