Much, perhaps too much, is currently being written about the German residential real estate markets, but with less substantial content. With our annual residential property map on rents & yields at 81 locations, we would like to contribute a little more substance in the form of figures & values to the charged discussion on rent caps & co.
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 is currently €8.97/sqm and in very good locations €11.54/sqm.
- Compared to the previous year, this represents a price increase of approx. 5.1% in medium locations and approx. 4.2% in very good locations.
- The differences in growth rates between the two locations are particularly striking: both throughout Germany and in the top 7 residential markets, rents in the middle locations rose more strongly than in the sought-after, very good residential locations. This is an indication that building land in very good locations is becoming increasingly scarce and expensive, and that government regulatory measures in the tight housing markets are at least having a dampening effect on existing buildings / stock.
- In our analysis, the average rental price of the very good locations in the top 7 residential markets rose by only 3.5% to currently €17.91 per square metre, which is the lowest value of all the location and location categories examined. In the previous year (2018 vs. 2019) the growth rate here was still approx. 6%.
- The strongest rent increase of approx. 5.4% was thus in the category "medium locations", outside the top 7 markets.
- The most expensive location in absolute terms, with an average rent of €23.42/sqm in very good locations and €17.33/sqm in medium-sized locations, is currently measured in Munich.
- The lowest rental price with an average of €6.17/sqm was registered in medium-sized locations in Duisburg. In the very good locations in the city of Remscheid, on the other hand, rents average only €7.50/sqm.
- Furthermore, a decline in prime yield was observed at almost all 81 locations. On average, the current gross initial yield is 4.37%, which is 22 basis points lower than in the previous year. Here, too, a declining compression dynamic can be observed. In 2019, a decline of 51 basis points was recorded.
- The yield of the top 7 housing markets fell by only 6 basis points to 2.9% this year. The decline was significantly higher in the B locations and the top 25 markets in our overall ranking. The average return here is 3.82%, which corresponds to a decline of 31 basis points.
- Berlin remains the clear leader with a gross yield of 2.4% due to the very high demand and the strong investment dynamics of recent years. The most attractive returns are currently being generated in Cottbus and Herne with 6.6% each.
With regard to the Catella risk-return profile, an increasing diversification potential with attractive returns (up to 5%) within Germany can be registered, especially for risk-averse investors. Especially on the portfolio level there are also numerous alternatives for risk minimisation.