Real Estate Business: going into 2023 with caution and optimism

January 2023 The Corona pandemic has ruthlessly exposed Germany's backwardness in terms of digitization and fast data lines. The war in Ukraine has made the issue of infrastructure even more topical and important. Hamburg Commercial Bank has been very involved in forward-looking infrastructure projects for years - and is now stepping up its commitment once again.

Mr. Axmann, how relieved are you that the crisis year of 2022 is over?

After a lengthy phase of rising prices and stable interest rates, 2022 hit the German real estate industry hard. Political and economic developments also caused us to reduce our new business volume. After our successful transformation we actually had more ambitious plans for 2022. But with Russia's attack on Ukraine at the end of February 2022 and the massive consequences of that, both economically and politically, it quickly became clear we will be modifying our goals. The world had more or less done a 180 degree turn. And other factors were determining the shape of the real estate business: Energy costs increased, interest rates rose and building materials became immensely more expensive - if they were or are in stock at all. As a result, many planned or initiated projects have been delayed by months or years - or have even been dropped completely.

How is Hamburg Commercial Bank operating in these troubled waters?

We are navigating on sight. And, to stay with the maritime imagery, have readjusted our compass.

What does that mean in concrete terms?

Before the crisis, our priority was to gradually expand new business. Now the primary concern is to protect the stock. "Safety first" is the order of the day.

What does that mean for your numbers?

In 2022, we ended up with a net new business volume of around 1.5 billion euros in the real estate sector. With a view to the market segments, in 2022 we focused primarily on logistics, office and residential properties. About a third of new business came from real estate financing abroad - this is more than in 2021 and a very deliberate result of our intensified efforts for even broader diversification. We focused on three foreign real estate markets: the Netherlands, the USA and Great Britain.

What are your expectations for real estate in 2023?

It will take some time before we see new movement in the market. One of the reasons why transaction volumes have fallen so sharply is that sellers and buyers have very different ideas about the price. Buyers do not want to buy at the old prices, but sellers have calculated and arranged finance on precisely this basis. However, from the middle of the year I expect to see a rise in the number of transactions again.

To what extent does the Hamburg Commercial Bank adjust its conditions to the changed market situation?

We continue to act cautiously and are focusing on portfolio financing, but we also remain approachable for project developments. Complex structuring projects are part of our DNA. The bottom line is that for the current year we are targeting a new business volume above that of the previous year. But all this is subject to the development of the economy and the markets.

There are a variety of opinions on whether employees will return to the office after the pandemic or whether the home office has overtaken the classic open-plan office. Which camp do you belong to?

The home office will remain, but the office will continue to exist as a meeting place and a place to interact and mingle. However, I do believe that office spaces will continue to change, with more spaces for joint discussion, for example.

What will be the role of “green offices” in the future?

ESG-compliant offices are becoming increasingly important for companies that are serious about sustainability and also report accordingly. The demand for energy-efficient space will significantly to very significantly outpace market supply over the next five years. The consequence is obvious: In good locations, new or modernized offices will become significantly more expensive and even exceed historic highs. In addition to which, there are also many that can be converted to being “green” by means of suitable investment. We will be available to assist our clients as finance providers for this transition to greater sustainability. However, there are also properties that are not suitable for conversion or for which the required capital investment would not make economic sense. Consequently we will unfortunately also see some stranded assets in the market over the coming years.