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At the recent RICS Valuers Conference in Frankfurt, Germany’s traditional real estate valuation methods faced close examination, particularly in light of the challenges posed by rising interest rates, a sluggish transaction market, and the increasing demands of ESG (Environmental, Social, and Governance) compliance. The conservative nature of Germany’s valuation system, long regarded as a pillar of stability, is now drawing criticism from both international observers and industry insiders who question whether it is equipped to handle today’s rapidly evolving market.
The fundamental issue is not just how ESG risks are reflected in valuations, but whether the German approach—rooted in long-term asset stability—remains effective in an environment that demands more dynamic, real-time assessments. While ESG was a prominent theme, the larger conversation centered on the adequacy of traditional German valuation methods, especially when compared to the more market-driven, scenario-based approaches common in the UK and US.
The conservative valuation philosophy: a double-edged sword?
Germany’s real estate valuation model, steeped in caution and long-term outlooks, has always prioritized minimising volatility. As Marcus Cieleback, Chief Urban Economist at PATRIZIA AG, explained, “This time, we do not have a situation of excess space,” pointing to external factors like rising interest rates as the primary cause of market distortions. This view reflects the typical German approach: hold steady and weather the storm.
However, this caution has led to increasing international concern. In Anglo-Saxon markets, values are updated more frequently to reflect current market conditions. Valeriya Dinger, a professor of economics at Germany’s University of Osnabrück, warned, “I wouldn’t be surprised if we see a wave of loan loss provisions for German banks on their domestic commercial real estate exposure.” Her concern centers on how German valuers tend to smooth over short-term volatility, potentially masking underlying risks.
In the US and UK, discounted cash flow (DCF) analysis and scenario planning allow valuers to model different futures, providing a more flexible, risk-sensitive approach. By contrast, Germany’s reliance on capitalized net income or replacement cost methods can obscure potential market shifts, leaving valuers and banks vulnerable to sudden shocks when those risks become unavoidable.
Is regulation a disadvantage?
Susanne Eickermann-Riepe, Chair of the RICS Europe World Regional Board, moderated a panel on regulation and voiced concerns over whether Germany’s highly regulated valuation system might be a disadvantage in attracting international capital. “We need to ask whether German regulation, which values stability, might actually hinder the market’s flexibility in times of crisis,” she stated, referencing growing frustration among foreign investors.
Eickermann-Riepe also emphasized that the conversation around valuations is not just about following regulations but about how valuers respond to changing market dynamics. “As valuers, we need to rethink how we measure risk and opportunity, especially when traditional valuation methods are under pressure,” she added. Her remarks echoed the broader conference sentiment that valuers are at a crossroads between established practices and the need for innovation.
ESG: the pressure mounts
The ESG discussion loomed large, but Francesca Galeazzi of KPMG raised alarms that many valuers are still dragging their feet when it comes to incorporating climate risks into their assessments. "I wonder why climate risks are not systematically included in the valuation," she said, voicing concern that the industry’s hesitance could lead to a future “carbon bubble” and sharp corrections when ESG risks are finally priced in.
However, Jörg Quentin from Deutsche Pfandbriefbank took a more pragmatic stance: “There are no green market values, there are market values.” His point? Until investor preferences shift to fully integrate ESG concerns, it doesn’t make sense to artificially adjust property values. This debate highlights the tension between proactively pricing in ESG risks and waiting for market forces to do the job.
Adding to the discussion, Sorfiane Ternifi from DWS Group noted that large asset managers already have access to the necessary data for ESG integration. “We can't say that we don't have enough data here, that time is actually over,” Ternifi said, making it clear that the onus is now on valuers to act rather than delay.
Scenario planning: A Path Forward?
A key point of discussion was whether the traditional German valuation methods—based heavily on income capitalization and replacement costs—are still fit for purpose. Tina Reuter, Managing Director at Cushman & Wakefield Germany, pointed to early signs of recovery, driven by foreign capital, but noted that the market remains in a deadlock. “We are at a turning point,” she said, implying that the future could hinge on how quickly valuers adapt to new market realities.
One solution proposed by several experts was a shift toward scenario-based valuations, already common in the UK and US and widely used in valuing other asset classes. This approach would allow valuers to model a variety of future scenarios—such as energy transformation or conversion risk—making it easier to adjust values before market forces demand it. Martin Belik from Cushman & Wakefield admitted that the lack of a comprehensive transaction database in Germany hampers this type of dynamic assessment. “As valuers, we don’t all know the same things about the market,” he acknowledged.
This brings us back to the broader challenge: without more dynamic methods, the German market risks significant value corrections when these hidden risks inevitably surface.
ESG Checklist: a small step toward a bigger solution?
The recently released RICS ESG Checklist has been hailed as a useful tool for helping valuers integrate sustainability into their reports. Gina Ding, one of the checklist's authors, noted that it provides a consistent framework for valuers to follow. “The checklist provides a good starting point,” she said, but added that its real value will be determined by how well the market adapts to ESG standards.
While the checklist is a step in the right direction, many at the conference agreed that it is not enough on its own to address the larger challenges facing valuers—particularly in a market as tightly regulated and data-scarce as Germany’s.
Is the German model storing up trouble for the future?
In separate media interviews, the dangers of Germany’s conservative valuation approach were highlighted by industry leaders like Keith Breslauer, managing director of Patron Capital Advisors. Speaking to Bloomberg earlier this year, Breslauer remarked, "There is nowhere to hide a covenant breach in the US,” contrasting the more aggressive approach to risk recognition in Anglo-Saxon markets with Germany’s more patient stance. In the US and UK, valuations are more reactive, with banks forced to address risks directly. In Germany, where valuations are updated less frequently, the risk is that banks may be sitting on outdated values, creating a hidden danger in the system.
Similarly, Birgit Rodolphe of BaFin, in a prior interview, downplayed fears of an imminent crisis but acknowledged the need for greater transparency in property valuations. “I don’t see a reason for drama,” she said, but added that more proactive measures to address valuation transparency would help ensure long-term stability.
The real concern, as echoed by multiple observers, is whether the German market will be able to adjust in time. If valuations continue to reflect past conditions rather than future risks, the consequences could be severe—not just for individual assets, but for the broader financial system.
REFIRE: The RICS Valuers Conference in Frankfurt highlighted the growing tension between Germany’s conservative valuation philosophy and the demands of a rapidly changing market. With ESG pressures building and the market still recovering from interest rate hikes, the traditional methods that have long underpinned the valuation profession may no longer be enough.
Susanne Eickermann-Riepe captured the essence of the dilemma: “As valuers, we need to rethink how we measure risk and opportunity.” Whether that rethinking involves adopting scenario-based methods, more dynamic market valuations, or simply embracing tools like the RICS ESG checklist, one thing is clear: change is coming. The real question is whether Germany’s valuers will make that leap before they’re forced to—by investors, or worse, the market itself.
