Housing Market Overview

H2 2023

Housing markets under pressure: significant rise in asking rents

March 07, 2024
Population at record high due to immigration now driving demand for residential space

Housing demand in Germany remains characterised by dynamic demographic trends and shifts in demand between the owner-occupier and rental housing markets.

Demand for residential space in Germany in 2023 was characterised by further population growth and immigration, particularly in the major conurbations. Earlier population forecasts had indicated that the German population would shrink to below 75 million by 2050. Following recent high net immigration of around one million, there are currently more than 84 million people living in Germany, resulting in a significant strengthening of demand for housing.

In addition to the overall population, the change in population structure is of particular relevance for the demographically related development of housing demand in Germany. There has been a continuous reduction in household size, i.e. the number of persons per household, observed over the last few decades. In recent years, the reduction in household size due to the increasing number of single-person households has resulted in an accelerated increase in the number of households and therefore in the demand for housing. This trend is particularly linked to an ageing population. Also, housing is not always developed where demand is greatest. This has resulted in a noticeable regional imbalance in population growth, particularly affecting the major agglomerations, as this is where population influx is strongest. For example, Leipzig’s population has grown by almost 20% over the last ten years. Cities are not only growing much faster, but also have a lower old-age ratio due to the significant influx of younger households. The city states, for example, have a significantly lower old-age ratio (ratio of over 65s to the 20–65-year-old age group) of around 30 compared to western German states (36) and eastern German states (48). The federal states of Hamburg and Berlin have the lowest ratios at 28 and 30, respectively.

Due to these developments, the trend in housing demand is also very uneven, and a further widening of the gap between current housing demand and the existing supply of residential space now appears likely.

In addition to demographic trends, demand is also characterised by shifts between the owner-occupier and rental housing markets. The ratio of rental to purchase costs will continue to shift in favour of renting for the time being and is therefore expected to result in an additional upswing in demand in the rental housing market for some time to come, even if financing conditions for the purchase of housing improved slightly at the end of 2023 and a slight revival in activity in the owner-occupier market occurs in 2024. Nonetheless, there are fears that the existing imbalance between supply and demand in the rental housing market will continue to deteriorate in the short term.

Project postponements and delays are hampering new housing construction

The crisis in residential new-build construction and the high level of uncertainty in terms of housing policy regarding the promotion of new-build activity are likely to bring about a significant decline in the number of completions in the housing market, and thereby further exacerbate the supply and demand situation in the regional housing markets.

The situation is coming to a head, particularly on the supply side. Residential new-build construction is going through a prolonged crisis with far-reaching consequences for the rental housing market. In the residential new-build segment, project postponements and order cancellations are currently approaching record levels, leading to a shortage of new orders received by companies specialising in housing construction. Over 50% of companies were complaining of a significant shortfall in orders at the end of 2023. This has been caused by the continuing unfavourable combination of high financing costs and only a moderate reduction in construction costs. The latter are affected mainly by a shortage of skilled workers and a further inflationary rise in labour costs, even if capacities are freed up overall. An increase in project insolvencies has contributed to a widespread decline in the availability of capital. As a result, the volume of newly-commenced housing construction projects in Germany has continued to plummet.

Added to this is the uncertainty relating to housing policy caused by the 2024 Federal Budget which was declared unlawful by the Federal Constitutional Court at the end of last year. The compromise that was reached envisages closing the resulting financial gap through the use of savings. These savings affect the Growth Opportunities Act (Wachstumschancengesetz) which was still in the mediation phase between the Federal Council (Bundesrat) and German parliament (Bundestag) at the beginning of 2024. Adjustments were made to the planned degressive special depreciation for new housing construction. This was one of the most promising topics discussed at the construction summit held in Berlin at the end of September 2023. Instead of the proposed 6%, this will now start at 5%. Overall, a persistently high level of political uncertainty and little room for manoeuvre in terms of creating impulses for new housing construction are to be expected in 2024. This means additional planning uncertainty which is associated with further costs.

Against this backdrop and in view of the significant decline in the number of new building permits and the continuing restraint amongst developers, under current conditions, the volume of new-build completions is expected to continue to fall over the next few years and could drop below 200,000 p.a. by 2025. For the rental housing markets in particular, this means a further exacerbation of the existing excess demand.

Tension in the housing markets now driving a significant hike in asking rents

Over the second half of 2023, average asking rents in the cities under review* rose by 8.2% compared to the previous year. This is a stronger increase than the five-year average (5.0% p.a.).

One of the principal causes of the price increases is the Berlin housing market, where asking rents rose by 21.4% year-on-year. Looking at the existing housing stock alone, asking prices soared by 31.0% year-on-year. Adjusted for differences in quality to reflect property specification and micro location, the increase is much more moderate at 11.9%. In Leipzig, asking rents also rose at an above-average rate of 10.6%. In the other six cities, the increase was between 4.8% and 7.1%.

Despite the rapid hike in rents in Berlin, Munich remains the most expensive place to live. Housing in the city was offered at an average rent of around €22.50/sqm p.m. over the last six months. This is followed by Berlin at €19.42/sqm p.m., Frankfurt (€16.88/sqm p.m.) and Stuttgart (€16.00/sqm p.m.). Leipzig remains by far the cheapest market with an asking rent of €9.51/sqm p.m.

A similar trend can be observed in prime rental prices, which have risen by an average of 8.3% across the cities under review. The highest prime rents of €32.70/sqm p.m. are commanded in Munich, but Berlin is not far behind with €31.00/sqm p.m. However, prime rents in Frankfurt and Stuttgart also showed above-average year-on-year growth of 8.8% and 9.3% respectively.

Outside the major cities, rents rose rather more slowly. In the independent cities, asking rents rose by 4.8% over the last twelve months. In the rural districts, the increase was 5.5%. However, it is worth noting that the figures are lower compared to the previous year. In the second half of 2022, there was an increase of 5.3% recorded in the independent cities and 6.7% in the rural districts.

*Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, Stuttgart, Leipzig

Fall in purchase prices of owner-occupier homes across most submarkets

Asking prices for owner-occupier homes in Germany continued to fall over the second half of the year. This decline in asking prices was seen across the board, affecting not only the Big 8 cities but also all owner-occupier markets in other urban and rural districts.

In the second half of 2023, average asking prices (for new-build and existing owner-occupier homes) in the eight major cities* fell by an average of -7.4% year-on-year. A year earlier, the decline was -1.6%. In the urban districts outside the Big 8, the year-on-year fall in asking prices was even greater at -10.4%, while prices in the rural districts fell less sharply at -3.2%. The main reason for these price corrections continues to be the rise in interest rates. The rise in capital costs has made the purchase of residential property less affordable for private households, resulting in a significant downturn in demand.

The overall downward trend in prices in the cities under review was more homogeneous than expected, although the sharpest price reduction was recorded in Stuttgart (-11.6%) while the least significant downturn was in Berlin (-3.6%). There was an average fall in prices for existing owner-occupier homes of -8.1%, while new-build housing recorded a smaller decline with an average price fall of -2.3% compared to the previous year. One exception was the price of new-builds in Stuttgart, where prices rose by 9.9%, mainly influenced by individual higher-quality new developments. Conversely, all other major cities recorded a decline in prices in the new-build segment. In Düsseldorf, prices fell by an above-average rate of -12.1%.

Munich remains the most expensive city, with owner-occupier homes offered at an average price of €8,720/sqm residential area in the second half of 2023. New-builds in the Bavarian state capital cost around €11,800/sqm. By comparison, prices in other German cities are much more moderate. In Frankfurt, the average price on offer is €6,240/sqm, with a premium price** of €10,000/sqm. In Hamburg, the prices are €5,930/sqm and €9,920/sqm respectively and in Berlin €5,710/sqm and €9,080/sqm. By comparison, prices in Leipzig are significantly lower, with average prices of just under €3,000/sqm and a comparatively favourable premium price of €5,310/sqm.

*Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, Stuttgart, Leipzig

**Top price: 90th percentile of all asking rents/purchase prices


Sandra Baumgarten, Senior Research Analyst

Contact us

Our Residential Market contacts:

Michael Bender, Head of Residential Germany

Roman Heidrich, Lead Director Value and Risk Advisory, Berlin
Sebastian Grimm, EMEA Head of Multifamily Valuation, Frankfurt

Helge Scheunemann, Head of Research Germany
Dr. Sören Gröbel, Director of Living Research, Germany


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