Elbtower Construction Halts in Hamburg, Casting Doubt on German Property Sector

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The construction of one of Germany’s tallest buildings has abruptly halted midway after the developer stopped paying its builder, yet another ominous sign for the nation’s troubled property sector. The 1.3 billion euro ($1.46 billion) Elbtower skyscraper in Hamburg was due to be completed by the end of 2022 but now is unlikely to be finished at all. The construction halt was announced on Monday and was blamed on the company’s failure to meet its financial obligations to the builder.

Austrian property giant Signa, founded by Rene Benko, the self-made billionaire who once owned New York’s Chrysler Building and Berlin’s KaDeWe luxury department store, needs to catch up on its payments to its builder, Lupp, an engineering firm that Signa, which has been building itself up through a series of acquisitions in recent years, is believed to have overextended itself during the boom times of low-interest rates and robust economic growth, according to Handelsblatt newspaper.

Investors have been pulling out of the sector recently as rising inflation and interest rates threaten to erode profits on existing investments. In Germany, the real estate sector accounts for a fifth of output and one in 10 jobs and has been viewed as a reliable pillar of stability. But a sharp rise in rates and construction costs has sent some developers into insolvency, while deals have frozen and prices have plummeted.

BNP Paribas reported on Monday that investments in German commercial properties dropped by 50% between October and December, driven by surging financing costs and record inflation. The deteriorating outlook has also hurt confidence in the economy and prompted investors to shift funds away from riskier assets like real estate.

The Elbtower was supposed to be a landmark, adding a modern edge to the historic Hafen City district. It was intended to have offices, a hotel and restaurant, a coworking space, and a gym. But its soaring form and sculptural appearance had drawn criticism from some residents, who argued that it would block views of the old town.

Hamburg’s senator for city development and housing, Karen Pein, said that if the project is not finished by the end of 2022, a contract “allows the City of Hamburg to dismantle the construction work performed to date, sell it to a third party for completion or complete the project itself.”

A spokesman for the city government said talks were ongoing with the builder to “find a common solution” and that he was optimistic that the project would resume soon. The city wants to ensure the project is completed and has the right to use the site for public purposes if needed. The project’s architect, Gregor Eichinger, described the halt in construction as a “harrowing moment.” He called on Signa to meet its payment obligations and said he was confident the firm would make good on its commitments. The spokesman declined to comment further. The halt in construction will affect about 150 employees.

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