German residential yields tighten further

German prime residential yields have tightened to just 4.7% on average, compared to 5.1% in 2017, according to Catella Research this month.

Nonetheless, of the 80 locations analysed by Catella, there are some big regional differences, particularly in the Ruhr region and in the eastern part of the country. For example, in Herne, in the Ruhr region, yields stand at 7.1%, followed by Cottbus (7%) and Remscheid (6.5%). It is a far cry from yields in ‘Top 6’ markets, such as Munich, where yields have tightened to just 2.8%.

Unsurprisingly, Munich’s prime rents are the most expensive in the country at €22.25 per sqm, more than three times as much as the €7.12 per sqm being charged in Herne and Remscheid. Rents in areas that Catella classifies as ‘very good locations outside the Top 7’ have increased by 3.35% on average in the past 12 months. In ‘very good areas Germany-wide’, rents have increased by 3.31%, according to Catella. And in good areas in the ‘Top 7’, rents have surpassed the €16 per sqm mark for the first time, at a euro more than last year. In good locations for the 80 cities surveyed, rents tipped over the €10 per sqm mark.

Rents continue to rise

However, when it comes to new rental contracts, increases have been even higher. On average, new rents increased by 4.5% in Germany last year to €7.99 per sqm, according to the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR). Moreover, in 50 independent boroughs and administrative districts, rents rose by more than 6% last year. Only a third of such boroughs and districts saw rents rise more slowly than the previous year.

Even average rents are on the up, with Munich once again leading the way at €16.65 per sqm, followed by Frankfurt (€13.09), Stuttgart (€12.62), Freiburg im Breisgau (€11.74), Ingolstadt (€11.28) and Hamburg (€11.14), according to the BBSR.

Predictably, rents in rural areas are significantly lower. In the districts of Wunsiedel (Bavaria), Vogtlandkreis (Saxony) and Holzminden (Lower Saxony), rents are even available at less than €4.50 per sqm, according to the BBSR.

‘This development shows us that demand for homes in conjunction with rising prices is very much focussed on very good residential areas,’ said Dr. Thomas Beyerle, head of group research at Catella.

Prices for apartment buildings in urban centres have also soared by 14.2% in the past year, according to the Association of German Pfandbrief Banks (vdp). The vdp’s residential property price index for Germany’s ‘Top 7’ rose by 13.7% last year, almost double the countrywide average.(ssk)