Attractive risk-return profiles in mid-sized southern German cities

A comprehensive new report by the Munich office of consultants Wüest Partner Deutschland highlights the attractive risk-return profiles of many smaller southern German cities. While investors often think of Stuttgart and Munich as being the obvious magnets for investment in the region, the study shows how many smaller cities are seeing higher rent and price increases than in the capital cities of Baden Württemberg and Bavaria, respectively.

In the latest (2019) edition of “Süddeutsche Wohnungsmärkte: Daten & Perspektiven”, rents and prices were seen rising faster in ten of the twenty cities surveyed than in Stuttgart and Munich.

According to Rüdiger Hornung, who heads up Wüest Partner’s Munich office, “The ongoing low interest rates and the still rising population in these cities is still exercising a lot of pressure on property prices, so that again in 2019 it’s highly unlikely there will be any fall in prices. The growing social pressure on housing is increasingly adding fuel to the political debates surrounding residential housing regulation. Of course, this can have a negative effect on the motivation of builders to build, with the result that supply gets even tighter.”

One city singled out for its risk-return ratio is Freiburg im Bresgau, which can offer yields of 3.8% with the same risk profile as Munich. From Stuttgart with yields of 3.2%, investors can find attractive yields in Ludwigsburg and Fürth, where they could get 4.5%, or Villingen Schwenningen which offers 5.5%.

Ten of the twenty cities analysed showed a higher rate of rental increases over the past five years than Munich and Stuttgart. In Augsburg and Aalen rents rose 29%, while Ludwigsburg, Neu-Ulm, Schweinfurt, Sindelfingen and Villingen-Schwenningen saw rents rise by over 25%. Many of these cities have experienced a very low rate of new building. In Ludwigsburg, for example, only 6% of the needed new capacity was built, and in Sindelfingen it was 11%. On average new builds only met 40.5% of the market need, down 27.8% of the figure a year earlier.

Most of the cities analysed showed a higher procentual rise in price than Munich, which has seen price rises of 33% over the past five years. In Schweinfurt, for example, prices have risen by 76%, while Augsburg, Reutlingen and Villingen-Schwenningen have seen increases of more than 50%.

The Wüest Partner study imputes the highest potential for rent and price increases to Stuttgart, Augsburg and Freiburg, with Munich, Nürnberg, Fürth and Ludwigsburg also expect to still rise strongly. More moderate price increases are forecast for Karlsruhe, Mannheim, Sindelfingen and Friedrichshafen.