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Updated Jones Lang LaSalle Residential City Profiles for 8 German cities - Offer prices for freehold flats see greater increases than rents – investment volume remains the same as previous year


Frankfurt, 17th February 2011 - In the German residential real estate market, offer prices for freehold flats rose in the second half of 2010 disproportionately to asking rents for flats. Apart from Cologne, where purchase prices remained the same as the previous year, all other reviewed locations showed price increases. In Munich, Frankfurt, Berlin and Hamburg, prices have increased by up to 10%, while in Leipzig, Düsseldorf and Stuttgart they have risen by up to 2.8%.
The upward trend in asking rents seen in all of the eight major cities reviewed has levelled out overall. “While purchase prices for freehold flats are picking up again, a preliminary consolidation phase can now be noticed after a period of strong rental growth during the last two years,” says Andrew M. Groom, Head of Valuation & Transaction Advisory for Jones Lang LaSalle Germany. This change was most evident in Frankfurt and Düsseldorf, where average asking rents experienced a slight decrease for the first time since 2009.

The rental markets in Berlin and Hamburg, however, prove to be sustainable and remain the two most dynamic in Germany. The northern real estate stronghold, Hamburg, is increasingly approaching the residential rental level of Frankfurt. Among the cities with stable rents, Cologne and Leipzig emerge, with the Saxon residential market showing almost no dips in the past years. Meanwhile, a slowdown in price surges has been noted in Munich. In contrast, Stuttgart has managed to push up into the Top 3 locations after experiencing an increase in asking rents in the second half-year of 2010.  “Overall, there are no signs of rents or purchase prices stagnating in thriving cities. An inherent imbalance in supply and demand, as a result of a growth in household numbers and the continued low completion rate of residential housing, characterise these markets and make further price increases in both segments likely,” states Roman Heidrich.

The social shift among more and more young people to live in separate households and seniors to continue to reside in larger flats, as well as the return to urban living by many families conflict with the perpetually mounting shortage of newly built housing. “Despite growing awareness of the problem in the cities, the addition of more newly built homes to these markets is thwarted by a lack of affordable land,” explains Sebastian Grimm. Thus, new constructions mainly target the high-end to luxury price segment. Together with price increases for existing housing, finding residential units in the lower and middle price segments will become increasingly challenging and will inevitably be limited to the less attractive city districts, this according to housing experts.
Overview of Findings:

Asking rents in Berlin and Hamburg remain dynamic – significant gains also in Stuttgart – rental growth in remaining cities weakened

Berlin and Hamburg, which are the two largest German cities examined among the eight, registered the highest average rental price increases, both in a half-year perspective as well as in the last two years. In H2 2010, asking rents in Berlin gained by 3.6% reaching € 7.20/m²/month. Thus, they increased within two years in total by 11.6%, equivalent to the peak value of all eight cities. The German capital shows with this growth its impressive potential to catch up, which will become more apparent as rents continue to increase in the coming years. In addition to a rising price spiral in popular locations, less sought-after parts of the city will also become more expensive.

Hamburg marks an increase in asking rents of 3% year-on-year and compared to 2009, a growth of 10%. For potential tenants in the Hanseatic city, this means an average asking rent of € 10.45/m²/month. Particularly the districts Altona, Eimsbüttel and Hamburg-Mitte are benefiting from this boom in rental prices.

Munich offers no surprises. The Bavarian metropolis, where the price structure has always been very high, remains the most expensive housing market in the country. Nevertheless, growth continued to dwindle in the second half of 2010 by 0.4%, resulting in an average asking rent of € 12.30/m²/month. The relatively low growth rate of 0.8%, as seen in the last four half-years, points to a stabilisation of rents on a higher level in Munich.

In Stuttgart, one of the more stable residential rental markets in recent half-year periods, average asking rents rose considerably in H2 2010. The Swabian metropolis recorded in the second half of the year the third strongest increase with 2.7% (to € 9.50/m²/month). The relatively affordable districts Ost and Nordost will benefit most from this growth trend.

Frankfurt, Düsseldorf and Cologne were the first to experience a reversal in the upward trend seen in the past years. While the average asking rent has remained stable in Cologne, which has the lowest average rent among the three cities with € 8.85/m²/month, values have dropped in Frankfurt (H2 2010: -2.2% to € 11.30/m²/month) and Düsseldorf (H2 2010: -1.1% to € 8.95/m²/month).
Nevertheless, over the past four half-years, asking rents have risen overall by 7.2% in Düsseldorf, 5.4% in Cologne and 4.1% in Frankfurt. This is by no means indicates a trend change, but instead a rest period with rental prices expected to again increase as early as the first half-year of 2011.

Despite a growing population, the housing market in Leipzig is characterised by a relatively high vacancy rate. This excess of supply is reflected in the rental price level (€ 5.00/m²/month), which has virtually remained steadfast for the past several half-years – a situation which is not matched by any other of the reviewed cities.

Price increases for freehold flats surpass rental price growth

While asking rents in the Munich residential market are stagnating, the uptrend in the freehold flat segment remains steady and has even picked up momentum. In the second half of 2010, offer prices for freehold flats reached on average € 3,980/m² – a new peak level. This substantial increase of 10.2% makes a significant difference. Munich has been able to continue developing its position as the market leader in prices, due to the large addition of completed high-end flats to the housing stock in the second half of 2010. The Bavarian state capital thereby secures its position at the top spot. With a price increase of 15.7% within two years, it emerges as the second most dynamic market among the eight reviewed.

The largest price increase between 2009 and 2010 was registered in Hamburg (+18.7%). With the average offer price standing at € 3,110/m² in the H2 2010, freehold flat prices jumped by 3.7% compared to the H1 2010. As a result, Hamburg increasingly is establishing itself as the second most expensive metropolis in Germany. In particular, the substantial volume of newly built flats in the high-end segment has, due to growing demand, boosted average offer prices considerably.

In Frankfurt, up to 2009 in second place behind Munich, offer prices rose in an above-average fashion by 6.9% in H2 2010. But that was not enough to surpass the Hanseatic City. At € 3,090/m², the Main metropolis nevertheless remains in the Top 3 with prices for freehold flats consistently rising. In the past two years, offer prices jumped by 10% and all signs continue to point to an additional increase. Also supporting further growth are the on-going favourable interest rates for building financing and the limited supply of newly constructed flats.

Despite the sharp upward trend, flats in Berlin remain relatively affordable with an average offer price of € 2,240/m² (+4.7% year-on-year). Offer prices also rose in the federal capital between 2009 and 2010, registering an 11% gain. Almost all districts within Berlin benefited from the price boom, with no end sight for the upswing. In sought-after city centre neighbourhoods, market-oriented real estate offers have called for the same prices as properties in Düsseldorf or Stuttgart.

The percentage increase in the past two years presents itself in single-digit results in the remaining markets reviewed: Düsseldorf (+6.7%), Stuttgart (+3.5%), Cologne (+1.5%) and Leipzig (+ 1.4%). Despite relatively lower growth rates, the average offer prices for freehold flats in the second half of 2010 in Düsseldorf was € 2,400/m² and in Stuttgart € 2,390/m², almost € 200 higher than in Berlin. In Cologne, prices fell slightly in the second half of 2010 compared to the previous year’s level (-1.0% to € 2070/m²). In Leipzig, one of the most affordable cities surveyed by far, the 2.8% increase in H2 2010 to € 1,420/m² resulted in a new peak level for offer prices last year. 

Residential portfolio investment remains the same as previous year

The transaction volume of residential portfolios in 2010 stood at around the same level as the previous year with € 3 billion (2009: € 2.9 billion), noting a higher cash flow in the first six months (€ 1.8 billion).

In 2010, around 50,000 residential units were traded in 171 portfolio translations registered by Jones Lang LaSalle. Important to note is the changing structure of transactions. Only ten portfolios had more than 1,000 residential units. Even with portfolio packages with 250 to 1,000 residential units, growth was only in the single-digit range in a year-on-year comparison (+7.4% for about 30 transactions). A significant increase, however, was recorded for portfolio transactions with less than 250 residential units. More than four times as many residential portfolio packages were traded in this segment (approx. 132). “In particular, wealthy private investors, family offices, pension funds and insurance companies have strengthened their investments in the risk-averse and inflation-proof housing sector,” explains Groom. German investors were above all the most active here. They have increased in the past twelve months their commitment to the housing market and are responsible for 90% of all transactions (2009: 76%). Prospective buyers of larger portfolios much like before are confronted with the high price expectations of sellers, resulting in few transactions being concluded in this segment.  The transactions that did take place mainly involved international investors, who made up 40% of the transaction volume share. “For 2011, we expect another slight increase in the transaction volume of residential portfolios. If two to three larger portfolio transactions take place throughout the year, a transaction volume of around € 5 billion is conceivable,” says Groom.
This is the sixth time that Jones Lang LaSalle has analysed the residential markets in Berlin, Hamburg, Munich, Frankfurt am Main, Düsseldorf, Cologne, Stuttgart and Leipzig. As a whole, 224,600 rental offers as well as 95,600 purchase offers for freehold flats and 5,200 purchase offers for apartment buildings were reviewed. The presented data is analysed on the municipal level, and divided by construction year categories and flat sizes.