Many cities in Germany are expected to shrink by double digits in the next 10 to 20 years, according to the latest ‘Birth Collapse’ study by investment consultants PREA.
Subsequently, residential construction and investments in residential properties will have to be viewed on a much more regional basis has been the case to date, according to PREA. Based on the number of births, the death rate, net migration and economic development, PREA has forecast the population and average age for all rural districts and independent cities in Germany.
Gabriel Khodzitski, CEO and Founder, PREA
‘The goal of the study is to give investors a clear idea of which locations are suitable for residential investment due to certain criteria, and which could have an increased vacancy rate due to the decline in the birth rate and the associated population shrinkage,’ said Gabriel Khodzitski, CEO and founder of PREA.
According to the Federal Statistical Office (Destatis), Germany had at least 84.3 million inhabitants at the end of 2022. This was the highest number of inhabitants ever recorded at the end of a year. The population grew by 1.1 million compared with the end of 2021, due to record net immigration. However, the birth rate fell by 7% between 2021 and 2022, and the trend looks set to continue, according to the Federal Institute for Population Research.
Regensburg, Leipzig and Potsdam take top spots
Cities with particularly high and sustained growth and a comparatively young population stand in sharp contrast compared to those with significant population declines. Regensburg, Leipzig and Potsdam will take the top places, according to the study, whereas Neuss, Trier and Moers will shrink the most, causing demand for housing to fall.
‘Large cities and urban regions will continue to grow, above all the metropolitan regions around Munich, Nuremberg, Berlin, Hamburg and Frankfurt am Main, but also large cities in eastern Germany,’ according to the study authors led by Juri Ostaschov, managing director and chief data scientist at PREA.
Leipzig stands out in particular in the eastern part of the country: PREA forecasts a 30.2% increase in the population over the next twenty years due to the increasing importance of knowledge-intensive services in value creation. Large cities provide an attractive economic environment for such services with their diverse networking opportunities and interregional transportation connections. Potsdam follows with 24.4%. And over in Bavaria, PREA is forecasting growth of 18% to 22% in Regensburg, Augsburg, Nuremberg, Erlangen and Fürth.
In total, 127 cities in the categories A to D were examined in the past twelve months, with the influx of international professionals cited as being largely responsible for the growth: ‘People who know the rent levels in other European and non-European countries are more willing to pay higher rents than domestic workers,’ said Khodzitski.
One in every two resi listings in Berlin now furnished
Furnished apartments, which command higher rents, are also becoming incredibly popular: one in every two listings in Berlin is now furnished, according to the study. And rents are rocketing as a result: rents in Berlin now stand at around €30.90 per sqm, compared to €29.70 in Hamburg, €32.70 in Munich and €32.60 in Frankfurt, according to the study. This compares to €32.10 in Amsterdam and Milan, €30.80 in Lisbon and €42.80 in Paris: ‘The segment for furnished living gives an indication of where rents are heading in the medium term,’ Khodzitski added.
However, rural regions in Germany over the next twenty years will not fare so well, with experts expecting population declines of up to 60% (in the Saale-Holzland district). The more rural German states of Saxony (-9.5%), Saxony-Anhalt (-17.2%) and Thuringia (-14.9%) will be particularly badly affected.
As such, the gap between rural areas and metropolitan ones is set to widen yet further. Interestingly, the typical age of people living in large cities is increasingly, presumably due to the high cost of living there. The average age of inhabitants in large cities is expected to rise to 46.5 years old within the next 20 years, up from 44.4 today.
Dr. Martin Kern, Senior Data Analyst, PREA
Subsequently, cities that prepare themselves adequately for the ageing population will perform better than those which don’t. However, according to PREA, these do not necessarily have to be exclusively large cities: ‘Given the ongoing high demand pressure on economic centres due to demographic change, the cost of housing, both for rent and purchase, will continue to rise,’ said Dr. Martin Kern, senior Capital Market quant at PREA.
‘This could make the surrounding areas of cities more attractive. This presents an opportunity for rural regions to counter population decline if they can present themselves as age-appropriate suburban communities.’
Shortfall of barrier-free homes to rise to 2 million
By 2035, the shortfall in barrier-free facilities, such as step-free access, sufficient freedom of movement, and level-access showers is expected to grow to around two million housing units. Accessibility is not only in demand within homes but also in public spaces. According to Kern, this includes the expansion of public transportation, adjustments to pavements and traffic lights to facilitate easier mobility, barrier-free access to public facilities, and the development of neighborhoods that offer a wide mix of residential, working, and local amenities. Of the five million people in need of care in Germany, only 16% are in institutional care. An additional 84% are cared for at home and 75% of them are cared for by family members, according to PREA. However, only 1.5 % of the residential properties in Germany meet the criteria for barrier-free facilities, such as step-free access, sufficient freedom of movement and level-access showers, according to a study by KfW Research.
One possibility for urban planners to address these challenges is to strengthen the surrounding areas of major cities, according to Kern: ‘Infrastructure measures that connect the periphery more closely to economic centres can spread the demand pressure over a larger area, allowing potential outlying regions to be incorporated into the growth region,’ he said.
This presents an opportunity for rural regions to address population decline if they can position themselves as age-friendly communities in the vicinity of cities. In doing so, these communities would benefit from the fact that an accessible city is not only more attractive to older people but also benefits all residents. This also offers an opportunity for property owners and investors. Due to the increasing demand for barrier-free housing and the currently limited supply, these types of housing units are likely to be in higher demand in the future, promising an attractive additional return on investment.
‘Property owners and investors currently have the opportunity to minimize vacancy risks and achieve an attractive additional return with barrier-free apartments, regardless of whether they arise from renovation measures or new construction,’ Kern said. ‘Accessibility benefits not only people with mobility limitations but everyone.’
