Market Report Germany: demand for housing remains high – regional variations in development

•    60 locations surveyed in national German comparison
•    Sustained excess in demand driving up prices, even in smaller locations

Hamburg, 22 October 2014. The demand for residential property in Germany remains high in metropolitan areas, many of the major cities and university towns, as well as in smaller affluent locations with a high level of purchasing power and desirable holiday destinations. Residential prices remain on an upward trend accordingly, albeit with noticeable variations between regions. These are the findings of the “Market Report on Residential Property in Germany 2014/2015”, published by Engel & Völkers.

Munich is the frontrunner in terms of residential property prices
“We are witnessing the highest prices for apartments in the cities of Munich, Hamburg, Berlin, Frankfurt, Cologne, Stuttgart and Düsseldorf,” said Kai Enders, Member of the Board of Engel & Völkers AG. In the first half-year of 2014, up to 16,000 euros per square metre were paid for freehold apartments at very good addresses in Munich and Hamburg, closely followed by Berlin, where prices of up to 15,000 euros per square metre were achieved. In the segment for detached and semi-detached properties, price highs of up to 13 million euros were reached at very good addresses in Munich. In addition to major cities, top prices of as much as 10 million euros and 5.5 million euros were also registered in the smaller yet affluent locations of Starnberg and Baden-Baden, respectively. The maximum price attained in Bad Homburg was 5 million euros. In all locations surveyed, unique homes in the most sought-after premises were sold for sums far in excess of the price highs quoted.

Transaction volume: Berlin cracks the one billion euro mark
The high prices for residential property in smaller, prosperous locations are reflected in the relatively high positions for these towns in the ranking list for transaction volume in 2013. In the segment for detached and semi-detached properties, for example, Bad Homburg reached a transaction volume of 107.9 million euros, coming in 26th place ahead of major cities like Dresden and Leipzig as a result. Baden-Baden comes in 34th place at 60.8 million euros in revenues, with Starnberg securing 38th place as the smallest location with around 23,000 residents (53.9 million euros). The top position, as in the previous year’s ranking, was achieved once again by Hamburg at 1.315 billion euros, followed by Berlin at 1.159 billion euros. The German capital also registered the highest growth in revenues amongst the Top 10 cities, at 16.4 percent over 2012, breaking through the billion euro mark for the first time. Moreover, Berlin has overtaken Munich to take first place in the ranking list of absolute transaction volume for freehold apartments, at a volume of 4.332 billion euros.     

Dynamic development in terms of planning permission and building completions
The decreasing size of households and the growing need for residential property at central addresses is ensuring that the excess demand in the 60 locations surveyed in the market report remains high. This trend is being reinforced, not least, by the low-interest policies pursued by the European Central Bank. Whilst the number of building permits granted was in decline over a long period, reaching its lowest point in 2008, the construction of some 266,000 apartments was granted in 2013 – marking a ten-year high. “This rise in building activity in sought-after locations will not, however, result in any noticeable alleviation on the housing market in the short term, in view of growing population numbers,” said Mr. Enders.

High prices at prime addresses – good and average addresses catching up
Strong demand for homes is leading to an ongoing rise in property prices in the majority of locations surveyed by Engel & Völkers. This is particularly true of good and average residential addresses, as buyers turn their attention to this segment as an alternative investment option. The reason for this is the fact that real estate at prime addresses is extremely limited. Furthermore, interested buyers are less willing to compromise, only accepting high asking prices if properties meet all of the key criteria. A stabilisation in prices can be observed in many locations as a result, particularly at very good residential addresses. Good and average addresses, on the other hand, offer greater potential for development. Engel & Völkers has also observed a rise in lower price limits at good and very good addresses in some locations. In the city of Essen, for example, the lowest end of the price bracket for detached and semi-detached homes at good addresses has risen. Top prices remained unchanged nevertheless, meaning that the price bracket has narrowed.   

High level of demand meeting with low level of availability
University towns and cities such as Kassel and Mainz are represented in particularly high numbers amongst the up-and-coming locations identified in the market report. Engel & Völkers also sees a great deal of potential in the cities of Dresden, Leipzig and Jena, all in eastern Germany. There is strong growth in population numbers in these locations, coupled with a non-sufficient supply of residential properties at sought-after addresses. The number of available residential property in Nuremberg is set to remain low, whilst more and more people seek a home in the Franconian city. In Hanover, sought-after residential addresses are also witnessing an increasing shortage in available homes. Price curves continue to point upwards in these locations as a result. In Berlin too, the top of the market has not yet been reached, with prices still relatively moderate in comparison to Munich and Hamburg. This is attracting international investors, in particular, to the capital. The demand for residential property in Berlin is high, especially in the premium segment. There’s also potential for price rises here,” said Mr. Enders. In Dresden, for example, prices for freehold apartments and rental prices are still comparatively low.

Outlook: Rise in sale and rental prices forecast for many locations
The growing number of households and the influx of new residents in German cities will result in a continuing rise in demand in the medium term on residential property markets in the locations surveyed. There is no sign either of levels of demand in the luxury segment and for holiday properties being appeased. A further rise in sale prices for residential properties can be anticipated in more than half of the locations surveyed. “This will not be as strong as in previous years however. We are anticipating a rise in prices in the rental segment, in university towns and cities such as Aachen, Nuremberg, Leipzig and Jena in particular,” said Mr. Enders, on a final note. Overall, the development of the residential property market in Germany will continue to vary from region to region.  

For further information please contact:

ENGEL & VÖLKERS AG
Princess Bettina Wittgenstein
Head of Global Corporate Communication    
Stadthausbrücke 5
20355 Hamburg        
Germany
Phone: +49 40-36 13 11 20    
Bettina.Wittgenstein@engelvoelkers.com    
    
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Market Report Germany_demand for housing remains high – regional variations in development
 

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