Report 2024

Residential Report Germany 2024

Report Germany 2024

Trends and insights of the residential market in Germany

The German residential market saw another year of consolidation in 2023. In addition to the significant rise in consumer prices, an unprecedented increase in construction costs and interest rates put the brakes not only on the investment markets but also on housing construction.

CONTENTS AT A GLANCE

Prologue [»]
Residential investment market Germany
Rental housing market Germany
Market data on major German cities
Factsheets on 109 cities

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Overview | Prologue| Residential investment market | Rental housing market | Download

PROLOGUE

SHARP RISE IN INTEREST RATES AND CONSTRUCTION COSTS CONTINUES TO NEGATIVELY IMPACT RESIDENTIAL MARKET

The German residential market saw another year of consolidation in 2023. In addition to the significant rise in consumer prices, an unprecedented increase in construction costs and interest rates put the brakes not only on the investment markets but also on housing construction. As a result of a noticeable increase in financing costs, some projects were reassessed, delayed or abandoned. Higher refinancing costs have already led to a number of insolvencies among property developers.
The upward trend in housing prices has come to an end for the first time in years against the backdrop of a challenging market environment and in particular due to the increase in financing costs. Buyers and sellers have been finding it difficult to agree on a price that is acceptable to both sides, especially when it comes to existing properties. Many market participants continue to take a wait-and-see stance as a result. This situation can also be seen in the very low transaction volume of €5.2bn posted in 2023, which is around 72% below the long-term average.
Rents rose more sharply than housing prices for the first time in many years in view of ongoing high purchase prices and a very tight rental market. This can be attributed to solid demand combined with very low new-build construction activity. We expect this rent trend to continue in 2024 as well.

GERMANY’S POPULATION EXPECTED TO CONTINUE TO GROW UNTIL 2030

Germany’s population has grown from 81.2 million (2014) to 84.4 million (2022), and this trend is accelerating with an increase in population of around 1.1 million recorded between 2021 and 2022. The population is expected to increase by around 170,000 people in 2023 compared to 2022 with many of these being refugees from Ukraine.
Between 2023 and 2030, the population in Germany is likely to stabilise at a high level of just over 85 million (according to model calculations by the Pestel Institute).

RECENT SHARP DROP IN VACANCY INDICATES RENTAL GROWTH ACCELERATION

Market-active vacancy in Germany has fallen significantly over the past 10 years in line with ongoing high population growth. The period between 2021 and 2022 saw the sharpest decline of 0.3 percentage points.
The CBRE-empirica Vacancy Index fell across all regions for the first time between 2021 and 2022. This is mainly due to relatively widespread housing demand from Ukrainian refugees.
Pressure on residential rents is likely to increase considerably against the backdrop of a significant drop in market-active vacancy.

NUMBER OF BUILDING COMPLETIONS EXPECTED TO FALL UNTIL 2026

German residential construction is currently being negatively impacted by the sharp rise in financing and construction costs. The significant decline in the number of building permits issued indicates a slowdown in residential construction until at least 2027.
We expect to see a significant drop in the number of residential building permits (260,000) and completions (240,000) in 2023 (final figures were not available at the time of this report). According to our calculations, the number of building permits is likely to drop further to around 200,000 residential units as of 2024.
Building completions will respond with a delay. Based on the number of building permits issued, we expect to see a decline in completions from around 200,000 (2024) to 160,000 (2026) before the market stabilises again. It is unlikely that the federal government’s target of 400,000 completed units per year will be met.

NEW-BUILD DEFICIT EXPECTED TO FURTHER INTENSIFY BY 2027

The Pestel Institute anticipates an annual need for new construction of between 360,000 and 410,000 units based on the current deficit and the need to replace obsolete properties. Based on estimated completion figures, this means that only 59% of demand for new housing will be met in 2023. This share is likely to fall to 44% by 2027 due to the drop in completion numbers.
This data does not take into account pent-up demand from 2023. For 2022/2023, the current construction deficit is estimated at around between 350,000 (ZIA) and 700,000 units (Pestel Institute). When we add this to the projected annual shortfall in new construction, the construction deficit could grow to over 1 million units by 2027.
It is therefore unlikely that the construction deficit will be effectively addressed this decade. Due to the current low number of building permits issued and the foreseeable low number of building permits in the coming years, it seems unlikely that this deficit will be fully remedied even in the 2030s.

KEY TAKEAWAYS

The German residential market was negatively impacted by a more challenging, expensive financing environment in 2023, by macroeconomic uncertainties and by the impact of several geopolitical crises.
German residential construction currently finds itself in a deep crisis due to this situation. A significant drop in the number of building permits issued to around 260,000 units is expected as early as 2023. For 2024, our calculations indicate that numbers will fall to just 200,000 units.
As such, the number of building completions is also expected to fall, albeit with a slight delay. Only slightly more than 200,000 completions are expected for 2024 and well under 200,000 for the years thereafter. The new construction deficit is likely to significantly worsen in the coming years as a result.
The recent sharp drop in vacancy in Germany already reflects this significantly tighter relationship between supply and demand and suggests that rental price growth will accelerate in the coming months and years.
For the first time in many years, price momentum on the rental housing market is significantly higher than on the condominium market. We also expect to see rental growth potential in the coming months. Apartments are still regarded as a very solid investment due to cash flow stability.

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