In the German residential market, rents continue to increase, but less rapidly, according to property advisor Colliers, who report that there is greater new-build activity in second-tier cities than in the Big 7 – an indication that new construction is tending to follow demand.
The growth in residential rents “falls well short of the rates we often see reported”, concludes Colliers in a newly published market report. In fact, there are now marginal falls in rents in some German cities including Berlin - at least in the new-build segment. But there is still a shortfall in new-build activity.
The first Residential Investment Market Report by Colliers International examines the residential markets in 42 German cities and concludes that since 2012, rents for initial lettings of new-build apartments across Germany have risen by 2.9% p.a. overall and 3.3% p.a. in the Big 7 cities Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart. Rents for the reletting of existing apartments have risen by 2.7% p.a. overall and 4.4% p.a. in the Big 7.
But Colliers also reports a trend towards more subdued rental price growth or even marginal negative growth, at least in the new-build segment. Examples of this include Berlin, Düsseldorf and Leipzig and also secondary cities such as Heidelberg, Kiel and Wolfsburg. In the German capital Berlin, the rent for new-build apartments fell from €13.95 to €13.50/m²/month over the first half of 2019. However, rents for existing apartments have continued to rise from €10.05 to €10.30/m²/month over the same period.
Big 7 bursting at the seams
Colliers forecasts a population growth of 6.3% in the Big 7 cities in the period up to 2030. The influx into the 25 largest cities will be at a similar rate of around 5.3%. Demand for residential space in these cities will also intensify as there is a low level of supply in those areas.
In terms of the Big 7 cities, Colliers forecasts the strongest growth of between 8% and 10.8% will be in Frankfurt, Cologne, Munich and Düsseldorf. The biggest upswing amongst the second-tier cities is expected in Potsdam, Hanau, Münster and Darmstadt.
Greater new-build activity in the secondary cities than in the Big 7
Colliers reports that new-build completions are still at an all-time low. The increased demand coupled with insufficient supply has resulted in rental price growth for relettings over the last few years. However new-build activity tends to follow demand, which means that the level of new-build completions per household is greater in the secondary cities than in the Big 7.
The highest completion rate with 17.9 newly completed apartments per 1,000 households is in Ingolstadt, followed by Potsdam (16.0), Regensburg (14.9), Oldenburg (11.7) and Erlangen (11.6).
The completion rate in the Big 7 cities is in a range between 5.0 and 10.6 newly completed apartments per 1,000 households. The highest rate is in Frankfurt (10.6), ahead of Munich (9.1) and Hamburg (8.1). The other Big 7 cities are way behind and the lowest rate is in Stuttgart with just 5.1. The lowest completion rates overall are in cities such as Krefeld (2.4), Braunschweig (2.8) and Mönchengladbach (3.1).
Major German cities still attractive destinations for residential investors
€181 billion was invested in German residential property in 2018, of which €49 billion was spent on multi-family apartment buildings. €66 billion was paid for condominium apartments and €64 billion was spent on detached and two-family homes. According to Colliers, the single highest volume was in Berlin with €5.51 billion.
But German cities outside the Big 7 are also attractive propositions for investors as they offer opportunities to achieve higher yields and there is greater development potential offered by so-called secondary locations located around the major cities. Colliers has observed noticeable increases in investment volumes in cities such as Regensburg, Erlangen, Braunschweig, Darmstadt and Hanover. The greatest increases were in Hanau (+189% to €135 million) and Bergisch Gladbach (+143% to €56 million), in other words satellite cities around Frankfurt and Cologne.
