Residential investment investors switch to B and C areas

Comprehensive market and demand analysis from Engel & Völkers Commercial and ImmobilienScout24 CommercialNetwork

Tenants are willing to pay more for good locations due to high demand pressure

Rising rents and low supply driving prices in prime locations and leading to shifts in demand from investors


Immobilienscout24The property market of large German cities is under pressure. More and more people want city living, but at the same time too little is being built. That allows prices for residential living to rise. A current market and demand analysis from Engel & Völkers Commercial and ImmobilienScout24 CommercialNetwork now shows that investors are increasingly switching to B and C areas on account of the tense markets.

Transaction volumes rise in Hamburg by 36%
The currently published “Property Market Report Hamburg 2014” reveals how it specifically affects Hamburg. The experts shot for land values shows a slight increase in the number of transactions by 7 to 411 residential investments sold in 2013. Compared to the previous year, the transaction volumes have risen by approx. 315 million euros to around 1.2 billion euros (36%). “On the one hand, more larger properties were dealt with in the Hanseatic city than in 2012, but on the other hand the cost of property clearly rose due to strong demand”, explains Alexander Lampert, Managing Partner from Engel & Völkers Commercial Hamburg, the market development. Currently, his report finds the price level follows in a lateral movement, since investors - despite system pressure and low interest - check their investment decision in detail regarding the net yield which can be expected.

Renters are prepared to pay more for good areas
The numbers from Engel & Völkers Commercial document that new lettings are mainly in the strong economic capitals and major cities. Thus, an increase of over 10 percent could be observed over the past two years in the desirable areas of Stuttgart, Hanover and Karlsruhe. It is not only in the desirable areas but also in the functioning middle and more simple living spaces in locations with positive economic and socio-demographic development that empty flats quickly find new tenants. “Good quality properties in combination with living atmosphere are not only ideal conditions for stable rent but also have rent-increase potential”, explains Monika Walther, Research Communication Manager for Engel & Völkers Commercial GmbH in Hamburg.

Engel & Völkers CommercialWith the increase in new lettings in cities, the willingness of tenants to pay more for a flat in a suitable location thus rises. This is covered in the current demand analysis of ImmobilienScout24. Particularly in the large metropolises, a strong increase in payment readiness is to be observed. Front-runner is Berlin with 11.3% in two years. In the meantime, main city-dwellers are ready to pay nearly 11 euros per m² of living space in a good position. But also in B-cities such as Bremen, Hanover, Dortmund or Duisburg, the payment readiness increases in the right areas.

Investors discover B and C locations
Investment property such as residential investment offers good investment possibilities not just in the large metropolises. Looking closely at the relationship between purchase price and annual rental income shows that it is possible to achieve attractive returns even in cities such as Dresden, Essen, Hanover or Wiesbaden. This is evidenced by the continued high number of transactions and increased volumes in the majority of Engel & Völkers Commercial locations. Therefore the demand also increasingly shifts to B and C areas. A trend that is visible even on CommercialNetwork, the investment portal of ImmmobilienScout24. “For the first time, we have evaluated over 2000 investment profiles of investors. The analysis shows a significant increase in the net factors of A cities in addition to an increased interest in B cities” says Fabian Bender, Head of Investment with CommercialNetwork. So, some locations such as Wiesbaden or Mannheim have only been the focus of investors on CommercialNetwork since the middle of 2012.

The effects of the much discussed, but yet to be legally enforced, rent brake will further reinforce the trend to continue. While yields in good locations of A cities lie at around 5% and tend to continue to decline due to the price rise, an investment in the good areas of B-cities can achieve between 6% and, occasionally, 7%.

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