Residential property markets: lowest growth in rents and purchase prices since 2009/10

​Press release including charts [PDF]

FRANKFURT, 22nd January 2018 –

• Growth in asking rents* slowed in five of the eight cities reviewed by JLL (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Leipzig, Munich and Stuttgart) over the second half of 2017. Following a rise of 6% in 2016, rents increased by an average of just under 2% over the course of the year, ranging from 1.0% in Hamburg to 9.1% in Berlin; Munich remains the most expensive city with asking rents of €18.45/sqm/month. However, there has been average annual growth of 3% across all cities since the first analysis in 2004, with rents rising by 50% since then. 
   
• Growth in asking prices for condominium apartments* also slowed slightly. Average growth over the year was 5%. Prices rose most during the year in Cologne and Frankfurt. The highest purchase prices are paid in Munich, where the asking price is €6,880/sqm. The average annual rise in purchase prices over the period since the first analysis in 2004 has been between 1.0% (Leipzig) and 6.4% (Berlin), with purchase prices increasing by 89% over that period.

 
“After the significant overall rise in rents seen over the first half year, when record growth rates took rents to their highest ever levels in both Berlin and Munich, the Bavarian state capital, this trend came to a halt in most cities in the second half of the year”, says Roman Heidrich, Team Leader, Residential Valuation Advisory at JLL Berlin. Heidrich continues: “Rental growth across all cities was at its weakest since 2010. Despite the increase in new-build activity, rents have now risen so high in some places that people looking to rent apartments have been increasingly forced to turn their attention to peripheral locations due to the lack of supply. Or they look to become owners themselves. With the exception of Leipzig, which is still comparatively near the start of its rental cycle, most major cities expect more moderate rental growth in 2018, but in the medium term this will still be significantly above the rate of inflation.”
 
Sebastian Grimm, Team Leader, Residential Valuation Advisory, JLL Frankfurt, adds: “It is not possible to make a 100% comparison of current rental growth between the rental and condominium apartment markets. The markets are differently sized, they comprise different products and often they are aimed at a different audience with different requirements and needs. Higher rates of increase in the condominium apartment market do not necessarily mean setbacks in this segment and are not in themselves bad news. Less than half of all purchases of residential  
properties were made with a view to a subsequent letting; they were a personal investment in bricks and mortar – in other words they were purchased by owner-occupiers. The current price increases in the condominium apartment market are complex and there are reasons for them. There will be yet further price rises over the coming year, even if not in every city or in every segment, and perhaps at a lower overall level. As long as interest rates remain low, it is unlikely that price increases will be excessive in the cities under review. There will always be exceptions. Investors need to keep their eye on developments in the market”.

 
These are the conclusions from Residential City Profiles** by JLL, which will be available to download from 28th February 2018 on the website at http://www.jll.de/germany/en-gb/research/residential 

 
Overview of analysis results

Wholly inadequate level of new-build activity in Berlin – willingness to pay ever increasing prices on Munich’s rental market appears to be exhausted in the top price segment

Whilst the highest year-on-year growth in asking rents was again in Berlin, at 9.1% (H2 2017/H2 2016), there was a significant fall in growth rate between the two halves of 2017 (the increase in H1 2017 was 13%). Rental apartments are now being offered at an average asking rent of €11.10/sqm/month. Rents in the German capital have almost doubled since 2004.
 
The second highest growth rate over the second half of the year was registered in Leipzig (7.5% year-on-year), but rents in the city are increasing from by far the lowest base. Asking rents were €6.85/sqm/month in the second half of 2017, which equates to growth of 39.8% since 2004.
“There is still high inward migration in both Berlin and Leipzig and also a wholly inadequate level of new-build activity, particularly in the rental apartment segment”, says Roman Heidrich.
 
He continues: “The realisation that the capital needs more new-build space has come much too late and has resulted in years of inadequate house-building policy, which is continuing to hinder speedy investment in residential development. Of course, the role played by the significant increase in construction costs in the residential new-build segment, caused by stringent energy consumption building regulations, must not be underestimated”.
  
Rental growth rates are significantly lower in the other cities under review.
 
With a fall in rental growth to 5% (2016: 10%), Munich is still undisputedly the most expensive city in terms of asking rents, at €18.45/sqm/month, which equates to growth of 65.6% since 2004. However, a slight fall in rents can be seen between the two halves of 2017. Six months previously, the top-level rent was still €18.70/sqm/month. “This development in the rental market is due entirely to the top price segment. Rents in this category fell by 3% across the city. Rents in the lower half of the market continued to rise. This shows that the shortage of supply on the residential rental market is by no means over, even in Munich. However, the willingness to pay ever increasing rents in the top price category appears to have been exhausted for the time being”, says Sebastian Grimm.
 
Rents also fell in Cologne: whilst asking rents were still at €11.50/sqm/month in the first half of 2017, they fell to €11.20/sqm/month over the second half of the year. “This decrease appears to be a temporary adjustment phase. The fact is that there is a shortage of residential space in Cologne too. For many years, only half of the annual requirement of 6,000 new apartments estimated by the city council has actually been completed”, says Grimm.
 
The second highest asking rents (€14.00/sqm/month) are in Frankfurt, where rents have risen continually in the past, most recently by 3.6% over the second half of 2017. Rents have risen by 40.0% since 2004. Those looking for apartments are faced with a lack of supply in Germany’s banking capital too.
 
The third highest priced city amongst the residential markets under review is Stuttgart. Asking rents in the Swabian capital rose by 4.7% in the second half of 2017 to €13.70/sqm/month, less than the growth in the first six months of the year (+8%). Rents have risen by 57% since 2004. “The strongest rental increases over the last half year have shifted from the most expensive city centre districts into formerly medium to lower-priced locations such as Bad Cannstatt and Zuffenhausen in the north. This also affected the popular areas around the Filderebene in the south. The shift of focus for those looking for apartments into more reasonably priced districts confirms the popularity of urban living within the city area, but not at any price. It remains to be seen whether this heralds a phase of falling growth rates in Stuttgart”, comments Grimm.
 
Rents in Düsseldorf have stagnated at €11.00/sqm/month compared to the first half of the year. This is a year-on-year rise of 3.3%. “The rental market experienced a much greater increase in supply, of around one third compared to the same period last year, which acted as a damper on rental prices in the top price segment. However, it is likely that rents will rise again over the medium-term”, says the residential expert.
 
Asking rents did increase in Hamburg. At €11.60/sqm/month and a year-on-year growth of 1%, the Hanseatic City experienced the lowest rental growth. “Rents in Hamburg have been growing at a slower pace than the other cities under review since 2013, and the trend is stable. It appears that the City of Hamburg’s wide-ranging and targeted residential construction alliance is bearing fruit”, says Heidrich.

 
Purchase price growth rates for condominium apartments also fall slightly; but double-digit price hikes in Cologne and Frankfurt
 
Purchase price growth rates for condominium apartments* have also fallen slightly but are still above those for the rental market. Double-digit price rises in the lower price segments contrast with 2% to 5% in the top price segment. The average annual price increase across all 8 cities was 4.6%, which equates to total growth of 89% since 2004; however, the growth rates registered in the second half of 2017 were the lowest since 2010. “Supply remains scarce and demand is strong, and the purchase of a condominium apartment is still an attractive proposition because interest rates are low.
 
This will ensure that the upswing in prices for condominium apartments continues, albeit at a slower rate than in previous years”, says Sebastian Grimm.
 
The greatest year-on-year increases in prices for condominium apartments were in Cologne (+11.1%) and Frankfurt (+10.7%); prices here increased at the same rate as during the same period in 2016. Anyone looking to buy a condominium apartment in Frankfurt needed rather deeper pockets: asking prices here were €4,830/sqm, an increase of 99% since 2004. Asking prices in Cologne were €3,480/sqm, which is an increase of 73% over the same period.
 
Growth rates in all the other cities under review were in single figures. This includes Berlin, which had for a long time experienced the highest growth rates. After an increase of 13% in the first six months of the year, prices grew at 9.2% in the second half. Since 2004, asking prices for condominium apartments have risen by almost 136% to €3,840/sqm.
 
There were similar year-on-year growth rates of around 6.5% in both Düsseldorf and Leipzig. Whilst the upward trend in Leipzig has continued, admittedly from a very low base level, to €1,810/sqm, in Düsseldorf by contrast there was a slight fall between the two half years (-0.8% to €3,630/sqm). “A fall in asking prices was observed in the North Rhein-Westphalia state capital, especially in the better locations and most expensive residential neighbourhoods, where purchase prices are in a range of €5,000 to €8,000/sqm. The substantial price hikes appear to be reaching their limit for the time being and purchasers of condominium apartments are increasingly focusing on peripheral areas, where asking prices for similar apartments are €1,000 to €3,000/sqm lower”, says Sebastian Grimm.
 
The new-build segment is faltering in Hamburg, where prices rose by 5.2% over the second half year (compared to the same period in 2016) to €4,230/sqm, which makes it the third most expensive city in which to purchase a condominium apartment after Munich and Frankfurt. “If you look at the change between the two halves of 2017, the growth rate has fallen to 0.5%. “On the one hand, a significant increase in supply was seen in the more reasonably priced districts of Harburg, Bergedorf and Wandsbek, and on the other, the growth rate in the prime segment in Hamburg has fallen from 8.9% to 3%, which is similar to the other cities. This could indicate a period of reduced growth rates in 2018”, says Roman Heidrich.
 
In the second half of the year, purchasers in Munich had to reckon on an average asking price for a condominium apartment of €6,880/sqm, which makes the city by far the most expensive German market in which to purchase a condominium apartment. Prices rose by 4.4% year-on-year, which is slower than in the past. The average annual price rise since 2004 stands at 5.7%.
 
The lowest growth rate registered during the second half of 2017 was in Stuttgart (+0.5%). Average asking prices have now risen to €4,070/sqm, compared to €2,200/sqm in 2004. “The moderate upward trend is likely to continue, even if a slight increase in supply can now be seen. Supply will remain below demand over the medium-term, which is due not least to a lack of building land caused, amongst other things, by local authority policy. Sadly, lengthy planning processes and convoluted decision-making procedures are commonplace in Stuttgart”, comments Sebastian Grimm.

Comments
 

* Asking rents and purchase prices refer to the median, i.e. 50% of the sample in any city is above this level and 50% is below. The period under review is the 12 months between H2 2016 and H2 2017.
 
** JLL’s Residential City Profiles present an evaluation of developments on the rental and condominium apartment markets in Berlin, Hamburg, Munich, Frankfurt, Düsseldorf, Cologne, Stuttgart and Leipzig. A total of 90,000 rental apartments and 50,000 condominium apartments offered in the market were analysed. The presentation of the data analysed extends to the individual submarkets and is broken down into categories based on age of building and size of apartment. Further detailed analyses for the period since 2004 are available on request.