Rental price increase lower than in the previous year - double-digit increase in purchase prices

In 2019, rents* in the residential markets in the Big 8 cities studied by JLL (Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, Stuttgart and Leipzig) have risen on average by +4.1% compared to the previous year. The purchase prices for owner-occupied apartments* in 2019 have risen once again and have continued to set themselves apart from rents: At an average of +10.2% compared to the previous year

January 28, 2020

FRANKFURT, 23 January 2020

 

  • In 2019, rents* in the residential markets in the Big 8 cities studied by JLL (Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, Stuttgart and Leipzig) have risen on average by +4.1% compared to the previous year. The increase was thus below the five-year average for 2014 - 2018 (+5.0%) and below the increase in the previous year (2018: +5.1%), but overall it was higher than expected at mid-2019. Significant regional differences can be observed, ranging from +1.4% in Leipzig to +8.0% in Cologne.
  • The purchase prices for owner-occupied apartments* in 2019 have risen once again and have continued to set themselves apart from rents: At an average of +10.2% compared to the previous year, they were significantly above the average five-year average and the increase in the previous year (+8.2% in each case). The range extends from +8.4% in Berlin to +13.3% in Düsseldorf.

 

“The reason for the slight decline in the rental price increase compared with the previous year is an overall increase in new construction activity, albeit with regional differences, which provides slight relief. Rising housing costs also lead to shifts in demand to the surrounding area and thus to structural changes in supply in general”, says Roman Heidrich, Lead Director Residential Valuation Advisory JLL Berlin. Roman Heidrich continues: "The number and structure of locally offered apartments is shifting towards the periphery due to the expansion of the demand for apartments. At the same time, the fluctuation is decreasing in many expensive and central districts. This in turn leads to a decline in the aggregate rents offered. Due to the significant decline in potential inner-city areas, this applies in particular to new residential construction. Furthermore, the regulatory margins for rent increases in central locations is largely exhausted and is further limited, for example, by an increasing number of milieu protection areas”.

"Particularly striking are the regional differences in the Big 8 cities studied by JLL. In addition to region-specific conditions, the housing policy approaches of the cities to address local demand excess causes the differences. While Hamburg, with around 58 new apartments per 10,000 inhabitants, achieves the highest level of completion in new residential construction among the cities analysed, Stuttgart has only achieved half as many completions per 10,000 inhabitants”, says Sebastian Grimm, Lead Director Residential Valuation Advisory JLL Frankfurt. This is also reflected in the development of rental prices. While the rent level in Hamburg registered a price increase of +2.8% in the second half of 2019 (to € 12.75/m²/month), rents in Stuttgart rose by +6.8% year-on-year (to € 15.25/m²/month). Grimm continues: "A trend that is also reflected in the development over the last five years, in which rents in Stuttgart have doubled in percentage at over 38% compared to Hamburg”.

Although Leipzig does not reach the completion level of Hamburg, new construction activity in the Saxony metropolis has also expanded significantly within a short time. This development is also reflected in the subdued average growth in rents of only +1.4% compared to the average of +6.2% for the period 2014 - 2018. The average rent level in the second half of 2019 was € 7.25 /m²/month. This effect becomes even more apparent when analysing new construction rents) and prime rents (€ 10/m²/month), which recorded a decline of minus 2.6% and minus 2.0% respectively, compared to the previous year's figures. In 2018, price increases of +15.2% and +7.4% were still registered.

In Berlin, average quoted rents in the second half of 2019 rose by +4.1% year-on-year to € 12.55/m²/month. Thereby, the development of rents in the capital has weakened significantly both compared to 2018 (+8.6%) and the five-year average (+8.0%). "To what extent this is due to the rent cap will only become apparent in the course of 2020”, says Roman Heidrich. He continues: "However, the current discussion is already leading to a sustained increase in legal uncertainty and inhibiting investment incentives in the Berlin rental housing market. In addition to a shift of investment activities to other cities, an increasing halt to modernization and refurbishment can also be observed. Furthermore, it is to be expected that there will be less new construction and more conversions to condominiums, especially in the rental housing market. Already after the discussion about the Berlin rent cap started in June 2019, a significant decline in rental offers could be observed”.

With an average price increase of +8.0 percent over the previous year to € 12.55/m²/month, which is significantly higher than in the previous year (2018: +3.8 %), rents in Cologne show the strongest growth of all the Big 8 cities. Over the past five years, rents have risen by a total of around one third. In Munich, which is still the most expensive metropolis for tenants (with +3.8% to € 20/m²/month), Frankfurt (+3.2% to € 15.35/m²/month) and Düsseldorf (+2.7% to € 11.55/m²/month) also show a restrained development: higher percentage increases of +5.1%, +4.4% and +3.8% were registered for the annual average for the period 2014 - 2018.

Sebastian Grimm looks ahead: "Rental price increases at a similar level below the five-year average with significant regional differences can also be expected for 2020". "Despite brisk new construction activity, there is still a significant deficit in new residential construction. In addition, the continuing high influx into the cities and the strong birth rate will continue to drive the demand for housing in the coming years”.

Acceleration of the purchase price dynamics for condominiums

With double-digit average price growth of +10.2% compared to the previous year, the development of the offered purchase prices in the Big 8 cities examined by JLL significantly exceeded the average five-year average (2014 - 2018: +8.2%) and the previous year (2018: also +8.2%). This means that purchase prices have risen once again in 2019. This price increase applies equally to the average development in the cheapest ten percent (+14.1%, at +11.4% on a five-year average) and the most expensive ten percent of the apartments on offer (+8.6%, at +7.0% on an average for the years 2014 - 2018). "In view of favourable financing conditions and increased yield spreads to alternative investments, condominiums remain favourable both for owner-occupiers and as an investment”, Roman Heidrich comments on the situation.

The highest average price increases for the freehold flats on offer were recorded in Hamburg (+11.1% to € 4,900/m²), Cologne (+12.3% to € 4,020/m²) and Düsseldorf (+13.3% to € 4,270/m²) with significant increases over the previous year (+4.3%, +2.9% and +3.9% respectively). The average five-year average in these three cities (+5.2%, +8.1% and +7.8% respectively) is lower than the average for the other Big 8 cities (+9.5%). Berlin and Leipzig, on the other hand, report slightly subdued growth in purchase prices. At +8.4%and +8.%, respectively, compared to the previous year, the average offer purchase prices in the second half of 2019 are around € 4,700/m² in Berlin and € 2,260/m² in Leipzig. With average price increases of +10.1% and +11.2%, both cities continue to show the strongest price increases of the Big 8 cities since the end of 2014.

The three most expensive cities Munich, Frankfurt and Stuttgart registered average purchase prices of € 8,130/m², € 5,860/m² and € 4,770/m² respectively. "These markets are characterized by a higher market maturity, which is manifested in relatively constant average price developments and a higher dynamic in the top segment", says Sebastian Grimm. In all three cities, the increase in 2019 in the prime segment is higher than that of the cross-city median.     

 


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