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Updated Jones Lang LaSalle Residential City Profiles* - Price increase continues in most major German cities – Investment volume already reaches last year’s level in first half-year

Frankfurt, 16th September 2011
- In the German residential real estate market, purchase prices** for freehold flats in particular rose substantially in the first half of 2010. In a year-on-year comparison, purchase prices in Munich and Hamburg grew by over 10 %. Increases were also registered in Berlin, Frankfurt and Düsseldorf of more than 5 %. Price increases in Stuttgart and Cologne, however, appear to have stopped for the time being, with the development of prices still remaining under the inflation rate. Leipzig is registering, much like before, the lowest prices. It is the only city of the eight reviewed that records a slight drop in purchase prices in a year-on-year comparison. Rental prices have likewise increased more significantly since mid-2010 in most of the reviewed major cities compared to the previous yearly period, with Hamburg (+ 7 %) and Berlin (+ 6.2 %) marking the greatest growths. The rental markets remain highly dynamic in both of these cities, although rental and purchase prices in Berlin range on a clearly lower level than in the hanseatic city.
“Due to the ongoing upward trend, it continues to be worthwhile to invest in the residential real estate market. Rental and purchase prices will continue to develop positively in the major cities in the future. Although the housing completion rate is currently increasing again, it still does not entirely meet the new demand, with the number of households increasing faster than the housing stock,” says Andrew M. Groom, Head of Valuation & Transaction Advisory Jones Lang LaSalle Germany.
Overview of Residential City Profiles Findings:
Rental growth in all major German cities – Berlin, Hamburg and Stuttgart most dynamic rental markets
Much like in previous years, the appeal of the Berlin and Hamburg rental markets in comparison to the eight reviewed major cities has grown the most significantly. The two cities, each with over a million inhabitants, record the highest rental price increases both on an annual basis as well as in a two-year comparison. In Hamburg, rents have risen since mid-2010 by 7.0 % to € 9.75/m²/month and within the past two years by 14 %. City centre locations are predominately in demand by tenants in the hanseatic city. “In Berlin, on the contrary, the high rental price growth sweeps across all districts, meaning also in previously less sought-after residential areas,” states Roman Heidrich, Team Leader, Residential Valuation Advisory Berlin. The annual increase of rental offers on average stood at 6.5 % (€ 6.55/m²/month) in Germany’s capital city and an overall growth of 11 % was noted in the last four half-years. “The process of recovery is in full force, despite a gap that still remains with the other major German cities.”
In Munich, for example, housing is almost twice as expensive as in Berlin, with the temporary break in the rental price increase not changing the situation and now appearing to have ceased. The recent upward trend results in a rental offer of on average € 12.10/m²/month, respectively an increase of 3 % in comparison to the same period of the last year. Since the beginning of 2009, despite numerous new building projects in Munich’s outskirts, residential rents have been placing an additional 4 % burden on the wallets of inhabitants of the city.
In Stuttgart, average rents have risen since the first half-year of 2010 by 5 %, standing now at € 9.40/m²/month. Price increases were thereby registered across the entire city region.

The average rental rate increased by 2 % in Frankfurt and approx. 1 % in Cologne. Frankfurt remains with € 10.85/m²/month the only city apart from Munich with a rental level above € 10.00/m²/month. For Cologne, a steady stabilisation of rental prices is emerging; currently, rental rates of approx. € 8.50/m²/month have been noted. Düsseldorf exhibits in comparison to H1 2010 an increase of more than 3 % to € 8.35/m²/month, thereby registering a growth of over 7 % in the past two years. A trend reversal cannot however be considered in Leipzig, despite a 2 % rental rate growth in an annual comparison. The trade fair city lies with € 5.00/m²/month clearly at the bottom end of the eight reviewed cities.

Munich and Hamburg maintain top spots in the freehold flat market – Berlin catching up considerably
Munich is and also remains the most expensive market for freehold flats. Prices have risen by over 12 % since H1 2010, with freehold flats costing on average € 3,440/m² in the Bavarian capital. In fact, prices have increased by more than 16.5 % since 2009. “Munich remains the highly dynamic market leader in prices and plays in a different league in the freehold flat segment,” says Groom.
Hamburg in the meantime has overtaken Frankfurt, which previously stood in second place for freehold flat prices. Within the last 24 months, a growth rate of almost 30 % reaching € 2,640/m² was recorded. Secondary locations are even benefiting from the purchase price boom. Frankfurt remains equally expensive with prices at € 2,600/m², but is significantly less dynamic as Hamburg (+ 13 %) with an increase of only 6.6 % year-on-year.  The fact that the new construction volume is only half as high as household growth has a positive effect on prices in Hamburg. “Hamburg appears to be developing into the second most expensive major city in Germany, even if in a small-scale viewing the high prices in Frankfurt’s Westend neighbourhood are ahead of those in the Hanseatic city,” states Sebastian Grimm, Team Leader, Residential Valuation Advisory Frankfurt.
Furthermore, the freehold market in Berlin is picking up speed. With prices at € 1,840/m², the gap between Cologne and Düsseldorf is becoming very minimal. In a year-on-year comparison, prices rose in the national capital by almost 10 % and since 2009, by 15 %. In addition, there are signs that Berlin’s city centre will align itself in the mid-term through development projects with the price level of other major European cities.
Following declining demand in the previous year, prices are again picking up pace in Düsseldorf. At € 1,985/m², average purchase prices for freehold flats have risen by 7.2 % within a year. The opposite holds true for Stuttgart. While a price increase of 6.5 % was seen between the years 2009 and 2010, prices have been stagnating since on a high level, registering € 2,140/m² in H1 2011. The most dynamic development took place in the city centre districts.
Cologne has stayed on a steady level at € 1,850/m² in the past years, where a balance between demand and supply has been achieved for some time. Leipzig, on the other hand, suffers from an offer surplus. Within 12 months prices fell further by 2 %, resulting in a decrease since mid-2009 of approx. 10 %. Freehold flats are offered here on average for € 1,040/m².

Investment volume already reaches last year’s level in first half-year
Within H1 2011 residential portfolios in the amount of € 2.9 billion were traded in Germany. This value is equivalent to the total volume achieved in the previous year.
In the 149 transactions identified by Jones Lang LaSalle with at least 10 residential units and at least one institutional investor involved about 100,000 residential units acquired a new owner. Half of the units came onto the market through the GSW Immobilien AG initial public offering (IPO). Cerberus and Whitehall were able to collect € 467 million for 60 % of their shares in the GSW. 
Together with eight other transactions with more than 1,000 residential units, the GSW-IPO represents 80 % of the traded residential units and a transaction volume of approx. € 1.3 billion. Only 26 sales with 250 to 1,000 residential units for approx. € 300 million took place, indicating the trend from the previous year towards smaller portfolio deals appears to have again ceased. This is also evident in the fact that almost 73 % of the turnover was generated by institutional investors.
“The desire for stable cash flows in well-populated regions is particularly high in volatile stocks and bonds markets,” explains Andrew Groom. Measured against the transaction volume, 46 % of the invested capital is based in Germany – the relative stability of the German residential market is becoming increasingly interesting for investors from other European countries such as France, Austria, Sweden and Switzerland. “We can safely assume that some interesting deals will take place in the second half-year of 2011,” says Groom. “We estimate a transaction volume of € 5 to 5.5 billion for the entire year. Target areas for investment will continue to be major population centres such as Berlin, the Ruhr region, Frankfurt, Hamburg and the Munich area.”

* This is the seventh 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, 230,950 rental offers as well as 97,700 purchase offers for freehold flats. The presented data is analysed on the municipal level, and is divided by construction year categories and flat sizes.

** Note: Rental or purchase prices describe the average, thus 50 % of the prices in a city range above this value and 50 % below.