Will Interest Rates Maintain their Low Level for Decades Yet?


January 2020

Although everyone assumed for the longest time that the European Central Bank (ECB) would start raising their lending rates no later than 2020, the sluggish economy has prompted the European bankers to put the interest rate reversal on the back burner until further notice – in fact, they actually eased their monetary policy further. Real estate service provider Savills therefore believes that interest rate hikes should not be expected before 2022. On top of that, they suggested the possibility that it might take decades yet to bring the eurozone back to the level of interest rates that used to be considered normal before the financial crisis (source:

For Germany’s real estate market, this would mean that demand could stay on a high level for a very long period of time yet or indeed keep growing. Savills expects that many investors, especially those who seek current revenues, may reshuffle their portfolios and shift capital from the bond segment to real estate. JLL, another real estate service provider, pointed out that European ten-year bonds in a volume of 127 billion euros will mature in 2020 – and that in the current low interest rate environment the real estate market remains the obvious choice for investing the capital that is about to be released (source:  

Germany Now the Second-largest Real Estate Market

JLL readily admits that the real estate transaction volume in Germany dropped by three percent year on year in 2019. However, they blame the fact on short supply more than on anything else. At 77 billion euros, the transactions total (which includes commercial, residential, specialised and nursing care properties, among other types) still exceeds the ten-year average by almost 50 percent. Another thing that happened in 2019 is that Germany became the world’s second-largest real estate market, taking the place formerly held by the United Kingdom (source:

Moreover, 2019 saw residential rent rates go up in Germany – for the 15th time in as many years, as Savills emphasised. There are no signs of a trend reversal, even though the housing segment is particularly hard hit by government regulations. According to Savills, the housing policy programs are not suitable to increase the supply in residential accommodation but, if anything, are more likely to exacerbate the housing shortage. Other programs, such as the child tax credit for first-time home buyers, are also stimulating demand. “On the whole, the current housing policy will effectively lengthen the market cycle,” or so the Savills experts conclude.

Other risks they identified include a possible recession that could put an end to the super cycle on the German real estate market. That said, Savills does not consider a recession likely; while Germany’s economy may lose some of the momentum seen in previous years, they do not believe it will contract.

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