Research

Housing Market Overview

H1 2024

Decline in purchase prices for condominiums significantly mitigated in the first half of the year

August 30, 2024
Number of completed apartments and building permits declining

Despite high demand for housing, both building permits and completions are declining. The reasons for this are not only the ongoing lack of suitable land for construction but also high interest rates and construction costs. Last year, a total of 294,400 apartments were completed, representing a decrease of approximately -0.3% compared to the previous year.

The target of constructing 400,000 new housing units was clearly missed in 2023 as well. The creation of affordable housing in German cities and metropolitan areas remains a major challenge. Many construction projects, especially in residential construction, have been postponed or canceled due to the increased interest rates and construction costs over the past two years. On the one hand, new orders were lacking, and on the other, planned projects were canceled.

Although the number of completed apartments has hardly changed since 2021 (2021: 293,400; 2022: 295,300), a decline in completions is expected with a time lag. It is likely that a large portion of the recently completed apartments can be attributed to building permits that were applied for and issued under much more favorable conditions until 2022. Additionally, the time span between receiving a building permit and completion of the apartments completed in 2023 extended by four months to a total of 24 months compared to 2020.

The number of building permits issued in 2023 decreased by -26.7% compared to the previous year, reaching 259,600 and therefore significantly below the number of completed apartments. As a result, the backlog of construction projects decreased for the first time since 2008, by 58,100 to 826,800 apartments compared to the previous year. Of these, 390,900 apartments were already under construction, while 214,500 apartments were "under roof" or in the shell construction phase.

The decrease in the backlog is partly due to a high number of expired building permits, which typically have a validity period of several years. In 2023, 22,700 permits expired. In 2022, the highest number of expired permits since 2006 was recorded, with 22,800.

Metropolises continue to be the focus of immigration

On the demand side, there continues to be steady demand growth with high immigration. However, in 2023, this was lower than the previous year, mainly due to a lower number of refugees from Ukraine coming to Germany. The war against Ukraine in 2022 had led to a strong influx into Germany, but this immigration has now more than halved. In total, around 1.9 million people immigrated to Germany in 2023, and approximately 1.27 million people emigrated from Germany. Despite the significant decrease compared to the previous year, the net migration balance remains at a historically high level. Only in 2022, 2015, and 1992 was this value exceeded.

Metropolitan regions continue to be the focus of international immigration. These regions already have the most unfavorable supply-demand ratios. On the other hand, the recently increased wages have led to improved affordability and a significant increase in new contract rents. Along with the current high population growth, market-active vacancies in Germany have decreased over the past ten years. The strongest decrease, with -0.3%, was recorded between 2021 and 2022.

The imbalance between supply and demand remains significant in 2023, which has significant implications for the efficiency of the rental housing market. The increasing discrepancy between existing and new contract rents reduces tenants' motivation to change apartments when demand changes. As a result, with rapidly rising new contract rents, the number of relocations and the number of advertised rental offers continue to decrease. This further intensifies the pressure on rental prices and leads to a reinforcing downward spiral.

Continued Rising Rents in Metropolises in the First Half of the Year

In the first half of 2024, rental prices continued to show a positive trend. In the examined Big 8 cities, the rental development remains at a high level and above the five-year average (+5.0 percent). However, the increase compared to the previous half-year is smaller. In that period, an increase of +8.2 percent compared to the previous year was observed. Nevertheless, there are some markets that have experienced an accelerated rental price development in the first half of the year.

Significant acceleration in average total rents compared to the previous year was observed in the markets of Frankfurt (Main) and Düsseldorf. In the first half of 2024, rents increased by +9.4 percent and +7.0 percent, respectively. In Frankfurt (Main), the average total rent is €17.72 per square meter per month, while in Düsseldorf, it is €13.91 per square meter per month. The rental housing market in Berlin continues to experience the strongest rental price growth, with an increase of +11.4 percent compared to the previous year. The average total rent here is €19.50 per square meter per month, although the increase has slightly weakened compared to the previous year (+16.7 percent).

The weakest rental development compared to the previous year was recorded in Munich (+3.2 percent) and Cologne (+1.4 percent). While the development in Munich was approximately at the level of the previous year (+3.5 percent), the previous year's development in Cologne was slightly higher at around +5.2 percent.

The highest rental level is still found in Munich, where apartments are advertised for an average of €22.96 per square meter per month. Berlin follows with €19.50 per square meter per month, followed by Frankfurt (€17.72 per square meter per month) and Stuttgart (€16.15 per square meter per month). Leipzig is the most affordable rental housing market after Düsseldorf (€13.91 per square meter per month), with an average of €9.80 per square meter per month.

In contrast to the development of average asking rents, the development of prime rents is slightly more downward. In the first half of 2024, prime rents in all Big 8 cities increased by +4.4 percent on average, which is significantly lower than the development in the previous half-year (+8.2 percent) and the five-year average (+4.5 percent). However, there was again a significant acceleration in prime rents in the rental housing markets of Frankfurt (Main) and Düsseldorf, with increases of +10.3 percent and +10.7 percent, respectively (previous year's development: +6.4 percent and +8.2 percent).

The decline in purchase prices for residential properties has further leveled off

The decline in asking prices for condominiums continued in the first half of 2024 in all Big 8 cities. The average asking prices for new and existing apartments were approximately -3.6 percent lower than the previous year.

This price decline has significantly weakened compared to the previous year (-7.3 percent) and the previous half-year (-7.4 percent). Frankfurt (Main) experienced the largest decrease compared to the previous year with -6.5 percent, but also showed a decreasing trend (previous year's development: -8.1 percent). Hamburg, on the other hand, had the smallest decline in the housing market, with a change in median asking prices of only -0.6 percent in the first half of the year compared to the previous year.

However, it should be noted that the current supply data only provide limited insight into the actual price development of completed sales. This is evident from the increased number of listings combined with a decrease in actual sales transactions in many major cities.

Only in the segment of newly constructed apartments, where the seller's negotiating power regarding the purchase price is lower due to higher construction/development costs, and therefore a lower demand is reflected more in the sales velocity, the difference between actual sales prices and asking prices remains significantly smaller.

In the first half of the year, the purchase prices for newly constructed apartments in the average Big 8 cities only slightly decreased by around -1.3 percent compared to the previous year. A year ago, the average development was slightly positive at +2.0 percent. This also indicates that prices for newly constructed condominiums have been relatively stable over the past two years, mostly moving sideways.

However, the price development in the new construction segment was less homogenous in the Big 8 cities compared to the development of existing property prices. Düsseldorf and Leipzig experienced significantly positive price development for newly constructed apartments (+4.1 percent and +8.7 percent, even when considering quality-adjusted data*), while Hamburg and Munich saw significant price declines of -5.0 percent and -5.2 percent, respectively. Munich remains the most expensive city among the Big 8 with an average price of €11,000 per square meter in the first half of the year. It is followed by Stuttgart with €8,530 per square meter, and Düsseldorf, Berlin, and Frankfurt (Main) with similar median prices in the new construction segment of €7,910 per square meter, €7,920 per square meter, and €7,980 per square meter, respectively.

*When considering quality-adjusted data, the changes in the datasets regarding the condition and amenities of the properties as well as micro-locations are estimated using a hedonic approach. All trends are tested for validity, even if not explicitly mentioned in the text.

Authors

Sandra Baumgarten, Senior Research Analyst

Contact us

Our Residential Market contacts:

Residential:
Michael Bender, Head of Residential Germany

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

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

 

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