Housing Market Overview
Falling prices in the home ownership market in the first half of 2023
Rental growth continues
While the first half of 2023 in Berlin's rental market was marked by sharp rises in rental prices, there were significant falls in purchase prices observed in the home ownership market.
The current median monthly rent has increased by 16.7% year-on-year to its current level of €17.50/sqm. This is a new record and can be attributed, among other things, to the strong demand in the rental market. But the rise in interest rates and fall in the number of mortgages agreed with private individuals are causing demand to shift towards the rental market, adding further momentum to the rise in rental prices. A similar pattern has emerged in the prime and new-build segments, as well as in the existing stock. In Berlin, the prime monthly rent climbed to €30.00/sqm in the first half of the year, an increase of 19.3% year-on-year. Rents for existing and new-build houses and apartments also rose by 19.1% and 10.0%, respectively.
However, the home ownership market in Berlin paints a different picture. The median purchase price continued to grow in the first half of 2023, albeit marginally by 0.5%. Prime purchase prices, on the other hand, fell by 4.4% to their current level of €8,900/sqm. The situation in the new-build segment is also weak, but the price falls were less pronounced than in the prime segment at 2.5%.
Berlin's housing market is already under considerable pressure, and not only because of continuing inward migration. The target set by the Senate for the construction of an average of 20,000 new homes per annum was not achieved last year. Nevertheless, 9.1% more new homes were built in 2022 than in the previous year (17,310 new homes in total). Although the shortage of skilled workers and rising building costs are major challenges to growth, it is essential to increase the volume of new construction significantly to alleviate the pressure in the housing market.
Dusseldorf's rental housing market develops dynamically in the first half of the year
The restraint in the Düsseldorf real estate market, evident since Summer 2022, continued in the first half of 2023. The development of prices in the individual market segments increasingly reflects this restraint.
Compared to last year, the rental market in Düsseldorf has grown consistently. The current median monthly rent has risen by 5.3% to €13.00/sqm. Among the Big 8 cities, this is the second lowest rent; only Leipzig has a more affordable rent of €9.00/sqm. In the first half of the year, the prime rent rose by 8.2%, significantly above the average of the last five years (-0.8% per annum). Since declining sharply during the pandemic, prime rents in Düsseldorf have been rising steadily. In contrast, there has been a slight decline in rents in the new-build segment, which have fallen by -1.2% in the first half of the year.
In contrast, the situation in the home ownership market is somewhat negative. The median purchase price fell by 9.7% in the first half of the year, to under €5,000/sqm. Düsseldorf therefore recorded a significant decline in purchase prices compared to the Big 8, and was comparable with Munich (-10.9%) and Stuttgart (-10.7%). A similar development can be observed in the prices for existing properties, which have fallen by 7.4% compared to last year. Prime purchase prices also fell by -4.8% to just under €8,070/sqm. In contrast, purchase prices have risen by 3.4% in the new-build segment since last year, albeit at a rate which falls significantly short of the five-year average of +8.1% per annum.
Düsseldorf recorded significant population growth in 2022 with 653,235 people registered in the city at the end of the year, an increase of approximately 9,500. Much of this is attributed to increased inward migration. Comparing this with the current completion figures (2,140 new homes) shows that there is a bottleneck in the housing market. One of the remedies is the new urban quarter on the Metro Campus, where up to 1,500 new homes are set to be built by 2027.
Frankfurt am Main
Housing construction declining despite high demand
Frankfurt's housing market is also feeling the effects of a slowdown in construction. In 2022, just 4,583 new homes were approved by the Frankfurt Building Inspectorate, 4.9% fewer year-on-year. This trend is even more evident in the number of completions. Due to rising interest rates and production bottlenecks, just 2,951 new homes were built last year, the third lowest figure in the last ten years. Therefore, the conversion of office and commercial space is becoming increasingly important.
Prices in the Frankfurt rental housing market grew in the first half of 2023, with a rise in the median monthly rent by 1.9% to its current level of just under €16.20/sqm. The picture is even clearer for prime monthly rents which recorded an increase of 6.4% to reach a new record high of €25.00/sqm. In the new-build segment, rents rose by 3.6% in the first half of the year, slightly below the five-year average (+4.5% per annum).
The situation in Frankfurt’s home ownership market is wholly different. The median purchase price fell by 8.1% in the first half of 2023. This is the third largest decline in a comparison of the Big 8 cities behind Munich (-10.9%) and Stuttgart (-10.7%). Prices for existing housing also fell by 10.0%. A similar picture can be observed for prime and new-build purchase prices. Top purchase prices fell by 8.2% to below €10,000/sqm in the first half of the year and purchase prices for new homes fell by 6.2% year-on-year.
The 'Greater Frankfurt Arc' incentive scheme was developed to promote housing construction in and around the city and to ease tensions in the Frankfurt housing market. Around 10,000 new homes are currently under construction in several new development zones including the Schönhof-Viertel quarter, Kleyerstrasse in Gallus and on the Rebstock compound. Nevertheless, the construction backlog continues to grow. Approximately 3,000 of the 13,000 new homes that have been approved in recent years but not yet built, have not yet reached the construction phase.
Hamburg's housing market shows a divided picture
In the first half of 2023, Hamburg's housing market also showed a divided picture - one of rising rents and, in some cases, falling purchase prices.
In the first half of 2023, the current median monthly rent rose by 6.8% to its current level of €14.90/sqm. Similar to the same period last year, this increase was above the five-year average (+3.8% per annum). A new record monthly rent of €23.45/sqm was set in the prime segment in the first half of the year, corresponding to a 9.1% rise in the prime rent since last year. Compared to the other Big 8 cities, Hamburg recorded the third-highest increase, behind Berlin (+19.3%) and Leipzig (+9.9%). The situation is similar in the new-build segment, where rents for new homes rose by a considerable 10.5% compared to last year.
The picture was more mixed in Hamburg’s home ownership market in the first half of the year. As in most other Big 8 cities, there was a significant drop in the median purchase price of 6.3% year-on-year. This development of prices was also evident in the market for existing housing where purchase prices fell by 8.6% compared to last year. In contrast, purchase prices in the prime segment grew by 2.3%. Just three of the eight cities surveyed recorded price rises in this segment: Leipzig (+7.9%), Cologne (+0.4%) and Hamburg. Purchase prices for new homes also grew in the first half of the year and a new record high of €8,170/sqm was reached, corresponding to a rise of 5.4% year-on-year.
In 2022, 9,234 new homes were built in Hamburg, an increase of approximately 18% compared to 2021. This created 770,100 sqm of additional living space. Of these new homes, approximately 2,430 are subsidised and therefore bound by social rent and occupancy commitments.
Recently, the Hamburg Senate decided to extend the rental cap ordinance for rental housing and introduce regulations on termination protection. The cap will continue to apply for a further five years, which means that rental price rises will be capped at 15% over a three-year period in accordance with §558 of the German Civil Code (BGB). Both regulations come into force in September 2023.
Strong rise in purchase prices and rental prices in the new-build segment
Despite a slump in demand fuelled by inflation, the energy crisis and rising mortgage rates, a positive trend was evident in both the rental market as a whole and the new-build segment of Cologne’s housing market in the first half of 2023. However, falls in purchase prices, especially in the existing stock, have dampened the mood in the market.
In the first half of the year, the median monthly rent reached a new record high of €14.80/sqm, an increase of 8.4% compared to last year. Only the rental housing markets in Berlin (+16.7%) and Leipzig (+11.1%) recorded stronger growth. There was also a significant rise in the prime rent of 4.8%. Moreover, double-digit growth of 10.4% in rental prices was observed in the new-build segment compared to last year. The current monthly rent in the new-build segment is €17.00/sqm.
The home ownership market in Cologne presents a multi-layered picture. There have been clear falls in both the median purchase price and purchase prices for existing housing. The median purchase price has fallen by 2.9% since last year and is currently reported at €5,000/sqm. In the case of existing housing, the falls in prices have been even stronger, with a decrease of 4.2% compared to last year. In contrast, a slight increase of 0.4% has been registered in prime purchase prices. This dynamism is even more evident in the case of new homes and with growth of 12.2%, Cologne leads the way in a comparison with the other Big 8 cities. Only Leipzig (+9.2%) can boast similar movement of prices in the new-build segment.
Cologne is not only an important location in Germany for companies, universities and science, but also offers a high quality of life for its residents. The Cathedral City therefore appeals strongly to young people, ensuring that demand remains high in the housing market. In 2022, a total of 2,327 new homes were built in Cologne, 7.7% fewer than in the previous year. Even the number of building permit approvals reduced by 21.3% year-on-year. The falling completion figures, the redistribution of potential buyers to the rental market and migration are contributing to a tense situation in the Cologne housing market.
Further rent rises accompanied by falling purchase prices
Despite the challenges of the overall economic situation, rents have continued to rise in the housing market in the trade fair city of Leipzig. Compared to other major German cities, Leipzig's housing market is still one of the more affordable ones, which is reflected in a significantly decreasing vacancy rate.
The rental market in Leipzig recorded an extremely dynamic and positive development in the first half of the year. There was a significant increase in rents in all segments. The median monthly rent reached €9.00/sqm, corresponding to a rise of 11.1%. Only Berlin recorded a greater increase in rents (+16.7%). Even prime rents have increased by 9.9% since last year. In a comparison of the Big 8, only Berlin (+19.3%) is ahead of Leipzig. Rental growth has also been observed in the new-build segment, albeit slightly lower year-on-year at 2.5%.
In the first half of 2023, Leipzig's home ownership market presented a mixed picture compared to the rental housing market. The median purchase price fell by 7.7% in the first half of 2023 to reach its current level of €3,100/sqm. A similar trend can also be seen in the existing stock, where purchase prices have fallen by 6.4% year-on-year. However, the situation is different for the prime purchase price, which has increased by 7.9% to reach €5,600/sqm. Purchase prices in the new-build segment also rose in the first six months of the year. Compared to last year, purchase prices for new buildings rose by 9.2%, significantly above the five-year average of 7.3% per annum. Only the city of Cologne was able to record higher growth in prices the new-build segment (+12.2%).
Housing demand in Leipzig is not expected to ease over the next few years. In contrast to Saxony's shrinking population, Leipzig’s population grew by 2.4% to around 616,100 last year (2022). Given the low number of new homes built in 2022 (approximately 2,300), there is considerable pressure in the housing market. To counteract this bottleneck, the development of a new urban neighbourhood is planned at Eutritzscher Freiladebahnhof (former freight railway station). Up to 2,400 homes are set to be built on the 25-hectare site. Construction works should commence in 2024.
Prices fall in Munich’s home ownership market in the first half of 2023
Although there was a sharp fall in purchase prices in the housing market in the first half of 2023, Munich remains the most expensive market to buy a home. Despite the considerable price falls, Munich still tops the price list in a city comparison.
There was extremely dynamic and positive rental growth in all segments in the first half of this year. The median monthly rent rose by 5.0% compared to last year to reach a new record high of €22.25/sqm. A new record was also set by the prime monthly rent. Despite remaining resolutely at €30.00/sqm for the last four years, it now stands at €32.25/sqm, an increase of 7.5%. The situation is comparable in the new-build segment. Here, rental prices have increased by 4.1% compared to last year, a rise which is above the five-year average of +2.1% per annum.
As already mentioned, the home ownership market in Munich has developed in the opposite direction to the rental market. Price falls were recorded in several categories in the first half of 2023. The median purchase price in Munich fell by 10.9%, the largest decline in a city comparison. The prime purchase price also fell by 8.7% and, at €13,500/sqm, is now considerably below the €15,000/sqm mark that was exceeded one and a half years ago. Prices have also fallen in the new-build segment. Here, Munich recorded a decline of 3.2% alongside Berlin (-2.5%) and Frankfurt am Main (-6.2%).
Due to the combination of high demand for housing, limited land resources and the attractiveness of real estate as an investment, the housing market in Munich is tense with demand significantly outstripping supply. Last year, 7,528 new homes were built, just 19 more than in 2021. To counteract this tense situation in the housing market, the city council adopted the 'Housing in Munich VII' housing policy action programme at the end of 2022. This €2.0 billion municipal funding programme aims to create subsidised and affordable housing.
Strong decline in purchase prices compared to a slight rise in rental prices
In the first half of 2023, the housing market in Stuttgart was affected by sharply rising mortgage rates and building costs, and a slowing economy. In particular, new housing construction stalled and further building projects were postponed or cancelled as a result of the decline in the number of building permit approvals last year (approximately 900) and the sharp rise in the cost of materials.
There was a relatively consistent development of Stuttgart’s rental market in the first half of the year. In general, a slight rise in rental prices has been observed. The only exception to this is the median monthly rent, which has decreased slightly by 1.3% since last year. This sets Stuttgart apart from the other Big 8 cities, as Stuttgart is the only city in which rents have fallen. Conversely, the prime monthly rent has increased by 1.6% year-on-year to reach its current level of €22.20/sqm. Rental growth was also observed in the new-build segment, albeit less strongly with an increase of 0.8% year-on-year.
The home ownership market in Stuttgart developed differently. There, the median purchase price fell by 10.7% year-on-year in the first half of 2023, second only to Munich (-10.9%). As a result, the current median purchase price has reached €4,940/sqm. There was also a significant decline of 9.8% in the prime purchase price. A year ago, the prime purchase price was just under €8,000/sqm; it is currently approximately €7,160/sqm. An exception to this is the new-build segment which developed positively in the first half of the year and recorded price rises of 6.3% year-on-year.
Several housing projects are currently planned for Stuttgart as part of the IBA (International Building Exhibition) and are to be completed by 2027. One such project is the Böckinger Strasse quarter in the Rot district which is to be developed into a socially mixed urban neighbourhood for various user groups and will create up to 400 new homes. The main investor in this project is Stuttgarter Wohnungs- und Städtebaugesellschaft mbH (SWSG).
Demand is spiralling as a result of rising housing and borrowing costs and population growth
Two particular trends relevant to housing demand can be identified on the demand side. Firstly, there are demographic trends which primarily affect rises and falls in the number of households and developments in their structure; and secondly, there are temporary qualitative shifts in demand, less demand for home ownership and more demand for rental housing.
There was a further significant increase in the population in 2022. According to the Federal Statistical Office (Destatis), at least 84.4 million people lived in Germany at the end of 2022, which is an increase of 1.122 million compared to the end of 2021. It corresponds to population growth of approximately 1.3% and is due to a significant increase in net migration to 1.455 million (2021: 329,000), the highest level of net migration recorded since German reunification. The main reason for this increase is the influx of Ukrainian citizens but also a general revival of international migration (>350,000) into Germany, which has returned to its pre-pandemic level.
Several trends can also be derived from changes in the demographic profile of the country due to the increasing ageing of the population which have an impact on housing demand in general. While a further rise in the number of smaller and older households is expected in the medium term, there is an associated increase in the total number of households to be considered. The increasing ageing of the population also has a major impact on the housing market. Since the individual age groups represent different user groups that vary in their lifestyle concepts and ideas, and in their income situation and housing preferences, the demand for housing is very diverse. Demographic structural change has a particularly strong impact on the housing market when there is a considerable gap between demand and supply. This gap particularly relates to the living space of the houses and apartments demanded and on offer, but can affect downstream qualitative characteristics such as furnishings and fittings. This disparity can be observed in the German housing market and is increasing the additional demand for specific housing types.
Another temporary discrepancy in housing demand is being observed and is affecting the demand for housing to rent and/or own. Rising interest rates have forced many potential first-time buyers to remain in the rental market. This situation is leading not only to a further surge in demand in rental markets, but also to a renewed increase in the current housing shortfall in many already tense regional housing markets. These shifts will continue until affordability improves again through falling prices or until rising rental costs gradually compensate for rising capital costs.
Housing remains scarce, interest rate rises stifle construction activity
The strong increase in real housing demand, especially in the rental markets, contrasts with a sharp decline in new housing construction. This will certainly lead to a further widening of the gap between demand and supply in the medium term.
The construction industry, which has already had to contend with sharp rises in building costs in 2021 in the wake of measures to combat the pandemic and the associated adjustments to global supply chains, will be further burdened by the sharp rise in borrowing costs. This has been accompanied by a decline in demand for home ownership. This trend is particularly evident when looking at rises and falls in the number of approved new homes.
In the first half of 2023, the construction of 135,000 new homes was approved in Germany. As reported by the Federal Statistical Office (Destatis), this was a 27.2% reduction in the number of building permit approvals in the first half of 2022 (-50,000). In June 2023, the number of building permit approvals for new homes decreased by 28.5% compared to the same month last year. This trend has been accompanied by a significant decline in the volume of new housing construction and in the gross value added in investment in housing construction (in the first quarter of 2023 this was around 3.7% below the previous year's value). The construction industry is therefore in a sectoral recession.
While these developments had a negligible effect on the number of completions in 2022 (when 295,000 new homes were built), the impact will be greater over time. The number of new homes could fall below 250,000 this year. Under current conditions, the forecast for completions is around 240,000 in 2023 and just 190,000-200,000 in 2024.
While the slump in the new business volume has taken some pressure off the rise in building costs, the freed-up capacity has taken pressure off the rise in labour costs. An easing of pressure has been observed in the cost of materials, which is also attributed to the decline in demand and significant fall in energy prices. Nevertheless, there are several reasons to suggest that building costs and their development will remain high over the long term. These include demand for an energy-efficient refurbishment of the existing housing stock which will ensure a continuing high level of capacity utilisation in the construction and finishing trades; the expected catch-up effects in new housing construction over the next few years; and the continuing labour shortage which is particularly pronounced in the construction industry.
Rents rise in all Big 8 cities in the first half of 2023
After years of significantly stronger growth in purchase prices for owner-occupier homes than in The fundamental changes in the economic and capital markets are continuing to have a strong impact on the housing market. Rental prices rose last year and this trend continued in the first half of 2023. In the eight metropolitan areas surveyed (Big 8), asking rents rose by an average of 6.7% year-on-year. Given that rents grew by just 3.7% in the first half of 2022, this is a clear acceleration of rental growth. It contrasts with the development of purchase prices which have fallen by an average of 7.0% in all Big 8 cities*.
Berlin stood out once again in the first half of 2023, with a 16.7% rise in asking rents year-on-year. A double-digit rise in rental prices was also observed in Leipzig where rents increased by 11.1% compared to last year. Movements in rental prices in the other major cities have been more moderate. For example, the median rental price in Stuttgart fell by 1.3% year-on-year, while the rental market in Munich remains the most expensive among the Big 8 cities with a current median monthly rent of €22.25/sqm (+5.0%).
A similar picture can be observed for prime rents. Compared to last year, prime rents in all Big 8 cities have risen by an average of 8.3%. This rise is above the five-year average (+2.8%). With a prime monthly rent of €30.00/sqm (compared to €32.25/sqm), a rise of 19.3% year-on-year, Berlin has now almost caught up the frontrunner, Munich. There have also been significant rises in prime rents observed in Hamburg (+9.1%) and Leipzig (+9.9%).
Rental growth is evident in the new-build segment. Compared to last year, new-build rents have risen by an average of 5.1% in the Big 8 cities. The double-digit rent rises in Hamburg (+10.5%), Cologne (+10.4%) and Berlin (+10.0%) are particularly striking. Conversely, rental prices in Düsseldorf have fallen by 1.2% year-on-year.
Outside of the Big 8, rents grew by 2.7% in all other independent cities in the first half of 2023, which is below the five-year average of +4.0% per annum, while the administrative districts recorded rental growth of 4.9%.
*Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Düsseldorf, Stuttgart, Leipzig
Prices fall in the home ownership market in the first half of the year
Falling purchase prices shaped the housing market in the first half of 2023. The main reason for this was the rise in borrowing costs which limited the financial options of potential buyers.
A decline in purchase prices was observed in all region types in the first half of the year, although there was little uniformity in the regional development of prices. The movements in purchase prices were as dynamic as the rental prices in the eight cities surveyed, but in the opposite direction. The decline of 7.0% year-on-year was significantly higher than in all other independent cities (-5.2%) and administrative districts (-2.2%).
Compared to last year, Munich (-10.9%), Stuttgart (-10.7%) and Düsseldorf (-9.7%) recorded the most significant price drops among the Big 8 markets. Only Berlin recorded slight growth of 0.5%.
There was greater disparity in the development of prices in the top segment (90th percentile). While purchase prices fell in Berlin (-4.4%), Munich (-8.7%), Frankfurt am Main (-8.2%), Düsseldorf (-4.8%) and Stuttgart (-9.8%), rises were recorded in the cities of Hamburg (+2.3%), Cologne (+0.4%) and Leipzig (+7.9%). The price rises recorded in Leipzig surpassed the five-year average (+6.1% per annum).
There has been a similarly mixed picture in the new-build segment. Compared to last year, purchase prices in the Big 8 cities have risen by an average of 3.1%. The highest price rise was recorded in the Cologne housing market (+12.2%). There was similar significant growth in prices in Leipzig of 9.2% compared to last year. In contrast, there have been notable falls in purchase prices in Berlin (-2.5%), Munich (-3.2%) and Frankfurt (-6.2%).
All results are based on an evaluation of asking prices. These do not provide any detailed information on the prices at which the houses and apartments were actually sold. The real estate market reports published by the official land valuation boards, based on the results of analyses of actual transactions, show some significantly greater price reductions.
Dr. Sören Gröbel, Director Research, Berlin
Sandra Baumgarten, Senior Research Analyst
Our Residential Market contacts:
Michael Bender, Head of Residential Germany
Ralf Kemper, Head of Valuation & Transaction Advisory Germany
Roman Heidrich, Lead Director Valuation & Transaction Advisory, Berlin
Sebastian Grimm, Lead Director Valuation & Transaction Advisory, Frankfurt
Helge Scheunemann, Head of Research Germany
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