Real estate industry in distress: wave of insolvencies continues

Real estate industry in distress: wave of insolvencies continues

The real estate industry in Germany is facing significant challenges. With rising insolvency rates and growing uncertainty, companies are fighting for survival. The insolvency of the renowned real estate company Deutsche Invest Immobilien (D.i.i.) in March shocked the industry and led to further uncertainty. The fear of insolvency permeates the entire industry, as 630 companies in the real estate sector had to decide on insolvency in the first quarter of 2024. This represents an increase of 18.6 percent compared to the previous year and 17.3 percent more than in the previous quarter.

Experts expect that the crisis in the construction industry will continue for a long time. Christian Alpers from the Falkensteg management consultancy predicts a double-digit increase in bankruptcies this year. The situation is particularly dramatic for large companies with annual sales of over ten million euros. In 2023, the industry recorded 31 major bankruptcies, while 21 were already recorded in the first quarter of 2024. Investing in long-term projects in Germany is viewed as increasingly uncertain. Construction companies are faced with a decline in orders, cannot fully utilize their staff and are having difficulty adjusting their cost structures in order to operate profitably.

The construction crisis is exacerbated by various factors. Increasing costs in housing construction are making the creation of affordable living space almost impossible, especially after the expiry of important funding programs and a significant increase in key interest rates by the European Central Bank. Investors are unsettled and the provision of affordable housing is becoming increasingly difficult. Despite the perfect storm in the construction industry, there is hope in companies that specialize in energy renovation, such as heating engineers, solar companies and craft businesses. Other sectors such as warehouse and logistics construction as well as industrial construction, on the other hand, are experiencing relative stability.

Insolvencies have increased not only in the real estate industry, but also in other sectors. A total of 4,520 bankruptcies were recorded in the first quarter of 2024, an increase of 12.6 percent compared to the previous quarter and 25.8 percent compared to the previous year. The uncertainty and economic instability are having an enormous impact on German companies and require solid strategies and measures to deal with the ongoing crisis.