Market facing split between 'saleable' properties and those with lowest ratings
Germany's residential housing market is effectively being 'split up' into properties that are saleable and those that will have difficulty finding a buyer, according to a new study by advisors JLL and real estate portal ImmoScout24.
There is increasing evidence that properties with a poor energy rating are already being priced in the market at a larger discount than more energy-efficient properties. Dr. Sören Gröbel, director of research at JLL, commented that "The price discounts for energetically poorer apartment buildings ARE increasing."
Poorly renovated properties are being hit harder in the market than others, and this was already becoming clear before the outbreak of the war in Ukraine last year, the study shows. The researchers compared purchase advertisements of multi-family houses in the first half of 2021 on the ImmoScout portal (the biggest in Germany) with ads in the first half of 2022. Properties were broken down by characteristics such as condition, amenities and micro-location, isolating variables that would impact energy efficiency.
Properties in the highest energy class, A, were then compared with buildings from lower classes to H at the bottom of the scale. The clear result was that the worse the energy efficiency class, the higher the discount in value. Accordingly, the discounts were greater in all classes in the first half of 2022 than in the previous year.
JLL says the trend is accelerating into 2023. Where last year the price difference in purchase prices for a multi-family house ranged from between 12% and 33% depending on energy class, in the previous year the range was from 5.6% to 30%. ImmoScout's own figures confirm the trend, even more pronounced now since the Russian invasion of Ukraine - where there is an overhang of supply of a certain type of property in a local market, with a wider choice for the potential buyer, the differences between the best-rated and the worst-rated energy-consuming properties are now reaching nearly 50%.
Notably, ImmoScout suggests that offer prices in the medium price segment from May to December 2022 for properties in the better energy classes A to D have not, in fact, declined. Properties with energy classes E to H have fallen by about 3%. In other words, a high rating appears to be fostering stability in segments of the housing market, despite the surge in energy costs and the higher costs of financing. For doom-mongers predicting an overall collapse in residential property prices, this is worth bearing in mind.
Immoscout24's managing director Dr. Gesa Crockford pointed out that demand for un-renovated second-hand properties was now falling in five of Germany Top 7 markets. This was an argument, she said, for considering renovation prior to a sale.
JLL also say that the energy efficiency rating is now also having an impact on rents. In the first half of 2022, net 'cold' rents for apartments with high energy consumption were on average 4.1% to 6.6% lower than for very energy-efficient apartments. Measured against the first half of 2021, the discount was thus 2.5% higher.
Over the years, the 'warm' Nebenkosten, or utility charges, were not a significant factor in tenants' choice of apartment. Now, tenants are highly sensitive to the energy ratings of prospective properties. And with rents having risen strongly, the study shows that the length of time an advertisement runs for a property with the poorest energy ratings has risen by 32%.
Hybrid property broker McMakler, in an earlier study, says that nearly 40% of German properties have the lowest energy ratings of F,G, or H. Only 14% have the top ratings of A+, A or B, with the rest somewhere in between.
ImmoScout's data from its latest housing barometer shows that utility and other extra charges included in the 'warm' rent has now risen to 18.3% of the overall rent a tenant has to pay. At the beginning of 2022, that share was 16.8%, making an increase of 19%.The same survey points to a shift away, for cost-conscious tenants, from older buildings in favour of energy-efficient new-build apartments of less than two years old. This in turn is driving up asking rents for new apartments, at the expense of older stock. New apartments are not subject to the same rental regulation as existing stock, so rental prices are more 'elastic' upwards. And with construction falling way short of targets, let alone coming close to meeting demand, the upward pressure on rents on new leases in the big cities looks set to continue.
