German housing sees strong demand, price and rent rises ahead
German residential property is headed for still further price rises and higher rents, and investors into the sector are still being drawn into targeted investment into the lesser-known towns and cities outside the most popular urban centres, according to a new study published by real estate advisor Catella.
The report, which analyses 77 residential locations across Germany on its investment merits, concludes that investors will be investing in force again through 2016-
According to Catella's influential head of research, Dr. Thomas Beyerle in Frankfurt, in a note: “Ongoing strong demand for residential property in metropolitan areas, and in locations with favourable population balance, is underpinned by urbanisation effects and structurally good economic conditions… The increasing appeal of residential markets will lead to higher rental prices and a rise in property values.”
The yield-risk profile for gross yields ranges from Herne at 8.2 %, to Munich at 3.4 %. The average of the locations analysed is currently 5.40 %. The highest rental prices of €18.39 per sqm are found in Munich, while the lowest in the locations investigated can be found in Herne in North Rhine-Westphalia, at €5.53 per sqm.
“What is new, and also a testament to changes in market trends, is the distribution between very good and mid-range locations,” explained Dr. Thomas Beyerle, Head of Group Research, at the presentation of the analysis. This is the result of two interesting developments in the German residential market: high levels of demand in central city locations remain uninterrupted, but capital from investors is increasingly flowing into locations with substantial growth potential. “In other words, the anticipated proportional rental price development will primarily be focused on mid-range locations,” said Dr. Beyerle.
The Catella researchers expect rental prices to continue to increase, on average, in the coming years due to urbanization effects. “The value of residential properties in city centres and urban districts with excellent infrastructure has been redefined in recent years. The residential market will remain the focus of market regulation this year, but calm analysis of this issue reveals that state intervention in rental prices has so far neither been able to halt increases nor cause any measurable number of investors to pull out of this allegedly unattractive segment,” said Dr. Beyerle.
Catella also forecasts considerable changes in price expectations in the popular mid-range segment in the coming years. High demand from investors, a significant increase in construction activity, rising average rental prices, and attractive offers for smaller homes in the 50–60 sqm size range, will shape the residential markets in German urban centres, say the Catella analysts.