Trends and insights of the residential market in Germany
Germany’s population has grown 5% over the past 10 years (2023: 84.7 million). Although the demographic shift is having a negative impact on population growth, the upward net migration trend is causing population figures to rise. While Germany’s population appeared to almost stagnate between 2017 and 2021, it has risen noticeably in the past two years, particularly due to the high influx of refugees from Ukraine.
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CONTENTS AT A GLANCE
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Prologue [»]
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Residential investment market Germany
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Rental housing market Germany
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Market data on major German cities
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Factsheets on 109 cities
HIGHLY POSITIVE POPULATION TREND (2013 TO 2023) IN GERMANY'S A-CITIES AND IN BERLIN
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Germany’s population has grown 5% over the past 10 years (2023: 84.7 million). Although the demographic shift is having a negative impact on population growth, the upward net migration trend is causing population figures to rise. While Germany’s population appeared to almost stagnate between 2017 and 2021, it has risen noticeably in the past two years, particularly due to the high influx of refugees from Ukraine.
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Germany’s popular A-cities and Berlin in particular (2023: 3.8 million) have to some extent decoupled themselves from the national population trend over the past 10 years with the population in these cities growing almost every year. These locations have also experienced strong positive momentum in terms of residents. This favourable trend is a clear indication that Germany’s top cities remain highly attractive.
RENT PRICES SEE STEEP INCREASE IN CURRENT ENVIRONMENT
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The favourable population trend combined with limited supply is behind the strong growth in rent prices we are currently seeing. Rents for new-build space in Germany, in Berlin and in the country’s other A-cities have experienced a particularly steep rise in recent quarters.
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Rents for new build space in Germany have risen steadily since early 2022, up roughly +12% since Q1 of that year.
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Market activity has been picking up in Germany’s top 7 cities with rents for new-build space in the country’s A-cities (with the exception of Berlin) up around 20% in the past 10 quarters from an already relatively high starting point. The momentum behind this trend recently began to slow compared to activity in Q1 2024. However, the steep rise in rents continues in Berlin with rent prices in the German capital now particularly high.
RENT PRICE TREND IN BERLIN WITH CONSIDERABLY MORE MOMENTUM THAN INCREASE IN PURCHASING POWER
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Against the background of lively activity in Berlin’s rental market, our approach is to place the current rent trend within the context of the development of purchasing power and inflation and then examine the supply/rent trend in the highly sought-after small rental unit segment.
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Asking rents in Berlin have increased at an above-average rate for space at both stock buildings and new-builds due to growing demand. Rents have risen +29% for space at stock properties and +21% for new-build space in the past two years alone. This indicates that the favourable momentum behind rent prices has gradually seen a significant move away from the development of purchasing power.
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While the strong growth in purchasing power in Berlin has more than compensated for inflation in Germany as a whole, rent prices in Berlin have seen a much higher increase than the inflation trend.
SUPPLY OF FURNISHED APARTMENTS IN BERLIN INCREASES SIGNIFICATLY IN SEGMENT UP TO 50 SQM
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Demand for small apartments of up to 50 sqm in Berlin is on the rise due to the demographic shift and the growing number of small households and of single-person households in particular. Overall, however, the number of residential listings in the segment has dropped considerably over the past 10 years.
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Between 2014 and 2019, the percentage of unfurnished apartments on the market clearly outweighed furnished options in the small apartment segment (up to 50 sqm). The supply structure began to shift significantly in 2020 at the latest, with furnished apartments now comprising the majority of the small apartment segment. More than two thirds of small apartments were listed as furnished in H1 2024.
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A lack of rent regulation and higher demand for short-term, temporary rental accommodation are likely behind this high percentage of furnished apartments in the small apartment segment.
RENTS FOR SMALL (UN-)FURNISHED APARTMENTS IN BERLIN CATCH UP TO GERMANY'S OTHER TOP CITIES
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This trend is reflected in the gap that has existed for years between rents for furnished and for unfurnished apartments. Activity on Berlin’s furnished apartment segment tends to be more dynamic than in Germany’s other A-cities. Rents for small furnished apartments in Berlin have been rising at a steeper rate (+86%) than those in the country’s other A-cities (+52%) since 2014.
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In H1 2024, rent prices in Berlin finally caught up with the average rents being charged in other locations in both the furnished and unfurnished segments. The median asking rent for furnished apartments in Berlin currently comes to €32.00 per sqm with €31.80 per sqm being asked in Germany’s other A-cities. Small unfurnished apartments are currently going for €16.60 per sqm in Berlin and for €16.35 per sqm in the country’s other A-cities.
KEY TAKEAWAYS
- General conditions on the German residential investment market improved somewhat in the first half of 2024. High financing, construction and land costs continue to create a challenging market environment for many of those involved. However, the ECB’s first interest rate cut, gradual acceptance of the new situation by buyers and sellers and healthy fundamentals in terms of supply and demand helped spur a clearly favourable trend on the German residential investment market in the first half of the year.
- Fundamentals around demand, which were already sound, are also being boosted by additional demand from refugees coming from Ukraine as a high number appear to be remaining in Germany. This, in turn, is creating additional demand, which is currently facing weak supply particularly in the country’s conurbations.
- Population, especially in the country’s top 7 cities led by Berlin, has grown at a much more rapid pace over the past 10 years than in other parts of the country. This can be seen in the strong momentum behind the upward rent price trend in the country’s major cities.
- More and more furnished apartments are being listed, particularly in the highly sought-after small apartment segment, a development that can likely be explained by additional demand for temporary living space and lower regulatory requirements.
- Rent prices are likely to continue their lively growth trajectory, even against the backdrop of potentially sluggish new residential construction completion rates in the years to come. In addition to offering the advantage of cash flow stability, this trend is a solid argument for investing in German residential real estate.
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