One question is on the minds of almost all of us: is the housing market heading a longer-term peak? "After all, it just cannot go on forever like this," is an argument we often hear these days. Nevertheless, with our annual residential map on rents & yields in 81 locations, we rationally address this question and derive trend movements.
First and foremost: the rates of increase of the past are easing somewhat, but we don’t see a structural trend break. Rising building completions (+13.8% from January to April compared with the previous year) and a looming change of interest rate policy should ease the situation on the market in the medium term, even if there is still excess demand.
Let’s look at the figures:
- The average residential rents of our 81 analysed locations continued to rise in the annual comparison. In medium locations, the average rent currently stands at €9.17/sqm and in very good locations at €12.16/sqm.
- The different growth rates between the residential locations are striking here. The rent cap in Berlin (which has been lifted again) is having a price-reducing effect on existing rents, but even without Berlin, rents in the very good locations have risen much more strongly.
- Compared with the previous year, this represents a price increase of around 2.2% in mid-range locations and around 5.3% in very good locations.
- In the top 7 residential markets, average rents in very good locations have risen by 3.63% to the current level of €18.56/sqm, while rents in mid-range locations have fallen by 0.02% (excluding Berlin, there has been growth of 1.27% here).
- The strongest increase in rents, at around 6.4%, thus occurred in the "very good location" category, outside the top 7 markets.
- Munich is still the most expensive location in absolute terms, with an average of €26.81/sqm in very good locations and €17.15/sqm in medium locations.
- The city of Herne is an affordable place to live, with an average rent of €6.29/sqm in medium locations and 7.98 €/sqm in very good locations.
- Yields continued to fall in almost all the 81 locations surveyed. On average, the current gross initial yield is 3.97% and has fallen by 40 basis points compared with the previous year. Even the Corona pandemic could not stop the yield compression momentum.
- Prime yields in the top 7 residential markets have fallen by 27 bps year-on-year to 2.63%. The decline was even greater in the top 25 markets, as yields dropped 34 bps. to around 3.5%.
- Munich is the clear frontrunner in Germany's lowest yield with a gross yield of 2.0% due to the very high demand and strong investment momentum in recent years. The most attractive yields can currently be generated in Cottbus, standing at 5.9%.
A look at the Catella risk/return profile shows that investor demand for the "safe asset class" residential remains high, so that the locations with attractive returns continue to dwindle. Nevertheless, there are still diversification opportunities at portfolio level and the spread versus government bonds remains high. We should get used to this level of yields and prices for the next few quarters.