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German and U.S. Real Estate Collapse Threaten the West’s Banking System

The commercial real markets of Germany and the United States, two of the largest such markets, are in a collapse phase, which has the potential to rupture the West’s banking system, and thereby affect every nation on Earth. Germany’s commercial real estate sector—office buildings, supermarkets, shopping malls, government centers—is the world’s fourth largest, possessing a (significantly fictitious) market value of $6.5 trillion. The United States’ commercial real estate market, rendering it the world’s largest, possesses a (significantly fictitious) market value of $25.4 trillion.

Big News, broke the story as reported by Germany’s Verband deutscher Pfandbriefbanken (VDP) banking association, in a Feb. 14 article, “German Commercial Property Prices Record Highest Ever Decline,” stating: “This week the VDP banking association said that in the last three months of 2023, German commercial property prices fell 12.1% compared with a year earlier, their highest ever decline.” It quoted VDP chief executive Jens Tolckmitt as saying “A trend reversal is not yet in sight.… The situation will remain difficult for the time being in 2024.”

The office buildings are emptying out, either because some are working at home full or part time, or the companies are shrinking their size, as some of Germany’s major producers are shifting their manufacturing to Poland. The rise in the “unoccupied rate” lowers the office buildings’ market value. The same is true for retail stores, shopping malls, etc. which are declining or outright shutting down. The real estate developers still have extraordinarily large loans that they took out to build the property, but the contracting income flow of rents is insufficient to cover the loan.

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