Real estate industry on the verge of collapse: wave of insolvencies hits large companies

Real estate industry on the verge of collapse: wave of insolvencies hits large companies

The real estate industry in Germany is currently experiencing a period of uncertainty and crisis, which is reflected in increasing numbers of insolvencies. In the first quarter of 2024, 630 companies in the real estate industry had to file for bankruptcy, which corresponds to an increase of 18.6 percent compared to the previous year. The announced insolvency of the large real estate company Deutsche Invest Immobilien (D.i.i.) has shocked the industry and created additional uncertainty. The future forecast for the industry is bleak, with experts like Christian Alpers from Falkensteg predicting at least a double-digit increase in bankruptcies for the current year. The crisis is expected to continue well into 2026 before a turnaround becomes apparent.

Large real estate companies with annual sales of over ten million euros are particularly affected by the wave of bankruptcies. There have already been 21 major bankruptcies in the first quarter of 2024, compared to just six in the same period last year. This situation has raised the question of whether it still makes sense to invest in Germany, as the long-term framework conditions for projects are uncertain. Construction companies are suffering from a sharp decline in orders, making it difficult to utilize staff and adjust structural costs in order to remain profitable. The crisis has reached other parts of the real estate and construction industry and there is currently no end in sight.

The construction crisis, which has been ongoing since 2020, is complicated by rising construction costs, which is severely impacting the creation of affordable housing. Important funding programs were allowed to expire at short notice, which unsettled investors and led to continued uncertainty. The increase in key interest rates by the European Central Bank (ECB) has also made buying single-family homes unrealistic for most people. Overall, there is currently a pause in the industry as investments are held back and the future is uncertain.

Despite the challenging times, there are areas of hope within the real estate industry. Companies that specialize in energy renovation, such as heating engineers, solar companies and craft businesses, as well as warehouse and logistics construction and industrial construction, have so far only recorded low numbers of insolvencies. However, Falkensteg's analysis shows that insolvencies not only affect the real estate industry, but have also increased across all sectors and company sizes. There were a total of 4,520 bankruptcies 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.