The year 2022 was marked by Russia’s invasion of Ukraine, which resulted in great suffering for many people and higher energy prices. Consequently, inflation and interest rates rose. What impact did these conditions have on the commercial real estate market? PA After more than ten years of upswing, the general conditions on the real estate market have changed completely. Interest rates quadrupled within a year. Of course, this had a significant impact on the market, where restraint and uncertainty now dominate. What does that mean in concrete terms? PA The transaction volume on the real estate market slumped over the course of the year, especially in the fourth quarter. Calculated for the market as a whole, there were 41 percent fewer deals last year; in the commercial residential sector, the decline was as much as 72 percent compared to 2021. At the same time, 40 percent of all deals were made in the first quarter – until February 24, everyone assumed it would be a normal year. The low transaction volume not only shows that there are risks, but also that supply and demand are not matching up. Would you agree? PA That’s exactly how it is. Due to the increased interest rates, buyers expect a significant reduction in the sales price. In addition, there are now other reasonablylow-risk investments like government bonds again. A ten-year federal bond has yielded less than zero percent for years; recently it even rose to 2.5 percent. This means that investors expect an additional risk premium when purchasing real estate. That’s why buyers are demanding price discounts in the current situation, which many sellers have so far refused to grant – partly because they don’t want to, partly because they can’t since their calculations are based on higher prices. We expect that it will take at least until mid-2023 for a new, lower price level to be found. And where will that be? PA We expect discounts of 10 to 15 percent compared to the current level, depending on the property. What criteria determine how great the reductions will be? PA In the business sector in particular, sustainable properties with a favourable environmental balance are in demand, especially in good locations. In the next few years, the demand for such properties will be greater than the supply. Rents will continue to rise there, with only a minimal correction in property values. In the medium term, we even see somewhat higher values. By contrast, the outlook is not good for business properties in secondary locations with investment backlogs; here we expect significant markdowns in the long term as well. There will even be properties where renovation no longer makes economic sense. Under these circumstances, how did the bank position itself in terms of new business in 2022? PA Due to the difficult conditions, we were deliberately cautious. In total, our volume of new business in 2022 matched that of 2021, i.e. €1.6 billion. In the Commercial Real Estate segment net income after taxes was €74 million. Does this caution also apply to new business in commercial real estate in 2023? PA Yes. A lot depends on the economy and the interest rate level. If the general situation eases, we will be ready.