German cities maintain strong rental price growth

A review by JLL has found that residential markets in eight major German cities have seen a strong correlation between growth in rental and purchase price rises, in the first half of 2017.

Rental house price growth continues to be strong in major German cities
In the first half of 2017, the strong rental price growth seen over the past year continued in most of the eight cities (Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, Stuttgart and Leipzig) reviewed by JLL, the investment management company specialising in real estate. The average year-on-year rise was around seven per cent. The increases range from less than one per cent in Hamburg to 13 per cent in Berlin. Rental price growth since 2004 ranges between 32 per cent in Cologne and 80 per cent in Berlin. 
The increase in asking prices for condominium apartments across all the cities under review was just under 8 per cent, which is slightly higher than the rise in rental prices. The rise in purchase prices since 2004 has ranged between 10 per cent (Leipzig) and 129 per cent (Berlin).

Rental prices are rising faster than purchase prices in Munich and Stuttgart 

The highest rise in asking rents in the first half of 2017 compared to the same period last year was in Berlin, with an increase of around 13 per cent, followed by Munich at 11 per cent. Rents rose by eight per cent in Stuttgart, nine per cent in Cologne and six per cent in Düsseldorf and Leipzig.Growth in Frankfurt was significantly slower, at three per cent. Asking rents in Hamburg were almost unchanged. After the strong growth in rental prices had appeared to be slowing down slightly in 2014 and 2015, there were new record levels of rental price growth in 2016 and 2017, primarily in Berlin and Munich.“Despite a slight rise in completion volumes and an increase in rental price regulation, the rate of growth in asking rents is still accelerating, in those two cities in particular” says Roman Heidrich, team leader residential valuation advisory JLL Berlin.
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He continued, “Even if there is no repeat of the high levels of population growth from the last two years, on-going economic growth is likely to mean a continuation of the inward migration of workers into Germany. This will result in further increased demand on the rental markets in Germany’s principal economic centres over the medium term.”
The greatest increase in asking prices for condominium apartments compared to the same period last year was in Berlin, at almost 13 per cent. There was also a double-digit rise on the Düsseldorf condominium apartment market, of 10 per cent.There were rises of between seven per cent and nine per cent in Hamburg, Frankfurt, Leipzig and Cologne. In Munich und Stuttgart, asking prices rose by five per cent and three per cent respectively – less than the increase in rents in those cities.Sebastian Grimm, team leader residential valuation advisory, JLL Frankfurt, said, “With rents rising faster and reduced purchase price growth, in a number of cities the rates of increase have been at similar levels in the condominium apartment and rental markets.“Only in Hamburg and Frankfurt was the rise in purchase prices still above the growth in rents. Rents in those cities are currently growing more slowly than in the other major cities, in part due to the recent increase in new-build activity in the residential rental sector. However, growth remains strong in the condominium apartment markets.”

Highest increase in rental prices in Berlin since 2004

Munich once again consolidated its status as the most expensive city in which to rent, with continued strong year-on-year growth of 10.5 per cent. The average for a rental apartment was €18.70/m²/month. Frankfurt was the second most expensive of the cities under review, with an average asking rent of €13.70/m²/month but, as in previous years, the rise of 3.2 per cent was relatively moderate.There was a significant rise in rents in Stuttgart, of eight per cent to €13.55/m²/month, and on the Hamburg rental market rents almost stagnated at €11.55/m²/month (+0.7 per cent). The third highest increase in rents among the cities under review was in Cologne, of 9.3 per cent to €11.50/m²/month, once again ahead of Düsseldorf (+6.2 per cent to €11.00/m²/month).Once more, the greatest hike in asking prices year-on-year was in Berlin, of 12.8 per cent, which is also the biggest annual increase since 2004. Rents rose to €10.80/m²/month and are thus approaching the €11.00 mark. The median rent in the German capital has risen by a good 80 per cent since 2004.Even the 68 per cent growth seen in Munich is nowhere near this level. At €6.55/m²/month, rents are comparatively low in Leipzig, where there is a steady upward trend of 6.0 per cent year-on-year.
“Since 2004, rental price growth in Hamburg has been half that in Berlin, due in part to a timely and co-operative residential alliance involving all participating market players. This type of initiative is still a long way off in Berlin. At best, current building permit numbers in 2017 are likely to result in stagnant new-build activity, which means that, despite political attempts to cap rents, they will continue to increase significantly because of the huge demand” said Mr Heidrich.He continued, “The increasing scarcity of development land, lengthy approval processes at the building authorities, increased political requirements relating to the development of social housing and public protests against over-development and new-build make construction more difficult and expensive, and that’s not just confined to Berlin.”

Highest growth in purchase prices for condominium apartments also seen in Berlin

“After the comparatively weak second half of 2016, growth in purchase prices were stronger across all major cities in the first half of 2017” said Mr Grimm.In the first half of 2017, the highest percentage growth in purchase prices for condominium apartments was in Berlin, at almost 13 per cent. Munich remains by far the most expensive city in which to buy a condominium apartment, at €6,790/m² – a year-on-year increase of 4.7 per cent, significantly weaker than in the past and continuing the trend from the second half of 2016. Purchase prices in Berlin and Munich are twice as high as in 2004.
Frankfurt and Hamburg came second and third, having experienced significant growth in purchase prices, of 8.1 per cent to €4,550/m² and 8.6 per cent to €4,210/m² respectively. In contrast, in Stuttgart the very strong growth rates seen in the last few half years have cooled markedly (2.6 per cent to €4,000/m² compared to H1 2016). This is actually a slight decrease compared to the second half of 2016.Purchase prices in Berlin rose by 12.5 per cent to €3,730/m². There was a further rise of 10.0 per cent in Düsseldorf, where condominium apartments are offered at €3,660/m². There the increase in Cologne was 6.8 per cent, with prices rising to €3,310/m². The upward trend continued in Leipzig, with a rise of 7.6 per cent to €1,750/m².
Mr Grimm continued, “Despite reports to the contrary in some areas, we still expect that purchase prices on the condominium apartment markets in the Top 8 cities will continue to rise.“The low level of new-build activity over the medium, term combined with a high propensity to purchase and strong demand plus the continued favourable financing conditions will result in further increases in purchase prices. However, we expect that purchase prices will rise more slowly than over the past few years and that there will be an even closer correlation between rental price and purchase price growth.“There are currently no signs of a price bubble, which could burst and result in a price collapse.”For related news and features, visit our Residential Property section.Access hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory  Get access to our free Global Mobility Toolkit Global Mobility Toolkit download factsheets resource centre

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