The increasing tendency for German apartments to be offered as furnished accommodation adds impetus to the upward surge in rents
As of the fourth quarter of 2023, residential rents in Germany's major cities were still climbing sharply. Data from ImmoScout24 reveals significant increases, particularly in Berlin and Munich. Munich’s rents for existing flats have notably surpassed €20 per square metre (per month).
In Berlin, asking prices rose 2.5% over the previous quarter, and in Munich, they increased by 3.5%. Yearly comparisons show even more dramatic hikes: Munich’s rents climbed 11.4%, while Berlin saw an 11.2% increase. Contrastingly, Hamburg experienced a slight 0.5% decrease in asking prices.
New-build flats are also facing substantial rent increases. Cologne and Munich recorded double-digit percentage hikes in new-build rents, with Cologne’s average rent for a 70 square meter flat exceeding 1,000 euros for the first time. Munich's rates were around 1,687 euros. Stuttgart also saw significant year-on-year growth, with rents for new-build properties rising by 14.6%.
Interestingly, while overall demand for rental flats in these cities fell slightly, demand in surrounding areas and rural regions rose by 11% and 10%, respectively. This shift indicates an increasing interest in more affordable living options outside urban centres.
The ImmoScout24 Residential Barometer, which analyzes around 8.5 million advertisements over five years, shows these trends. The reference property for their analysis is a two-room existing flat with 70 square meters.
The recent surge in 'furnished apartments'
Likewise, the outlook for 2024 offers little solace for renters, with rental costs headed only in one direction - upwards. Adding impetus to the upward surge in rents in a market like Germany's with a surplus of demand over supply is the increasing tendency for German apartments to be offered as furnished accommodation - thus skirting the restrictions that hold rents back in the more 'normal' market of renting an unfurnished apartment.
Anyone who has any experience of the regular German market for rental accomodation will know that 'unfurnished' literally means that - a bare empty apartment devoid of any fixtures and fittings, no kitchen appliances or even sideboards, just exposed pipes and electric sockets where the lucky new tenant can attach up all his own personal belongings - nearly always necessitating at the very least a trip to IKEA to buy and install a new kitchen. The least one might have been perfectly good, but it ended up being smashed up or dismantled and dumped on the pavement outside, to be picked up by appointment with the local waste disposal company.
Recent attempts in Germany to freeze residential rents have, not surprisingly, triggered unintended consequences. The result of ever-tighter legislation has resulted in landlords availing of the loophole which permits 'furnished' apartments - which are NOT subject to the constraints of regular apartments to let, whose maximum rent increase over the previous tenancy is proscribed by the local "Mietpreispiegel", or allowable rental price index.
ImmoScout24 sees €10 premium per sqm for 'furnished'
Real estate portal ImmoScout24 has analysed online advertisements for apartments nationwide, with the portal itself being one of the biggest websites for those looking for accomodation. Furnished apartments rented out for a limited time period now account for almost a third of the total supply in Germany's Big 5 metropolitan markets of Berlin, Hamburg, Munich, Frankfurt am Main and Cologne. They command an average of ten euros more per sqm per month than traditional apartments.
In Frankfurt am Main, the proportion of furnished apartment is highest at 41% in the fourth quarter of 2023 - up from 30% at the beginning of 2019. Berlin follows in second place with 35%, followed by Munich is in the middle of the "Top 5" with around 30% furnished. Cologne is in fourth place (19% ). In Hamburg, furnished units are the exception with a share of 15%.
The proportion of furnished apartments nationwide is at a much lower level than in the biggest cities, but has still increased from 8% to 11% since 2019. In the biggest cities, the premium for furnished accomodation is 53% on average higher than for unfurnished, or around €11 per sqm, bringing the average price per sqm to €28.85.
The idea of furnished accomodation was originally aimed at foreign professionals, who were not dug into the local economy in the same way as local Germans, and who might have only been looking for temporary accomodation. But such is the pressure on housing in the larger cities now that many locals can't find anything on the normal rental market, and find themselves pushed into taking the more expensive options.
One hidden downside of the rise of furnished accomodation is that their (bloated) rents are also included in the local rent index, the basis for rent increases for existing apartments. Hence, the more furnished units included in the rent index (Mietspiegel), the faster the rents of normal apartments can rise.
No regulation for 'furnishing surcharge'
German law does not regulate how high the 'furnishing surcharge' can be. Theoretically it is supposed to be a function of the current value of the furnishings provided, with a nominal 2% of that value permissible for a landlord to include in the surcharge, according to a ruling by the Berlin Regional Court. In practice the landlord can charge what he wants, with the tenant having no access to the breakdown of basic rent, operating costs and furnishing surcharge. The tenant simply pays the all-inclusive rent stipulated by the landlord. And since most furnished apartments are let on a 'temporary' basis, there is little comeback for the tenant, as the letting of furnished apartments is still very much a legal grey area.
Landlords are certainly using furnished apartments in the bigger cities to circumvent the relevant rent cap. They'll be feeling encouraged by a study commissioned by the Federal Ministry of Justice last year and carried out by consultants Oxford Economics, which found little evidence that there had been widespread systematic conversion of unfurnished into furnished apartments since the introduction of the last major rent freeze in 2015. No great need for emergency regulation, then.
REFIRE's view
REFIRE: While there may be black sheep landlords out there, determined to eke out the maximum rent from the most vulnerable or desperate tenants, the truth is that most landlords are NOT making super-normal profits on their 'furnishing surcharge'. And the last thing we need in times of severe housing shortages is yet more 'well-meaning' but inevitably misguided housing regulation.
For many landlords, the only realistic option they currently have between tenancies is to either sell the apartment or to rent it furnished and for a specific period of time. The alternative is to take on another open-ended (for the tenant) renter, whom it may be impossible to ever get out of the apartment, given German law which is heavily biased in favour of the sitting tenant.
Given the current low level of prevailing rents (in Berlin, for example, of frequently €6-7 per sqm), most private landlords are seriously discouraged from seeking a successor tenant at about the same rent level. A fair and affordable rent for many tenants would be in the region of €12-15 per sqm, depending on location and condition. But he can't legally raise the rent to that level, although if he could, he'd prefer to rent unfurnished.
The landlord has many additional costs in providing a furnished apartment. He has to buy and maintain furniture, pay 15-20% commission to a web portal to advertise the apartment, constantly re-evaluate potential tenants, and deal with lawyers for the 35-page tenancy agreement at each tenant handover, yearly or half-yearly. Energy efficiency improvements, interest rates of 4%, and other frictional costs add to the landlord's overhead.
So yes, he's getting a higher rent. But it's not all free money. And for the tenant, while the costs of his accomodation are higher, just remember: Facebook is full of ads from people moving on, who are selling or giving their stuff away, because their circumstances have changed and they have to move on. Writing an IKEA kitchen down to zero after a year or two is also very painful, as countless tenants who've had to do so in Germany can confirm.
