Germany’s premium market nears saturation

It will soon become more difficult for developers and owners of high-end real estate to find buyers or tenants for luxury apartments in prime locations in Germany’s largest cities, according to Die Welt.

Thanks to the low interest rate climate, there is often little difference in cost for affluent households between paying rent and repaying a mortgage. The margins for developers have traditionally been much higher in the premium residential segment.

“Whereas previously peripheral districts have largely been ignored, investors are now turning their focus increasingly to the areas around the biggest cities,” said Samira Akhlaghi from CD Deutsche Eigenheim.

In response to ever-increasing property and rental prices, more and more families are moving to the suburbs and exurbs, a trend confirmed by the latest figures from the Federal Office of Statistics and state statistical agencies.

“It is typically professional, affluent households, i.e. couples in their 40s with children, who are increasingly buying houses in the suburbs,” explained Michael Stuber from CD Deutsche Eigenheim. The biggest beneficiaries are small towns and communities within easy commuting distance of metropolitan centres.

Office properties are among the best investment objects on Germany’s real estate market. According to a new CBRE study, roughly EUR 7.6 bln was invested in the office sector during H1 2016, which represents 42% of total investment in commercial real estate.

“The rental markets in Germany’s five largest office centres – Berlin, Düsseldorf, Frankfurt, Hamburg and Munich – remain highly dynamic. In H1 of this year, these five cities registered office space take-up of around 1.5 million square metres, which is almost 14% higher than the same period last year,” said CBRE’s Carsten Ape. In panEuropean comparison, Germany is the second largest investment market after Great Britain, and clearly benefits from its reputation as one of the safest and most stable investment havens in the world, said Fabian Klein from CBRE.

As reported by the Suddeutsche Zeitung, demand for office space in Berlin is currently running higher than ever, and not enough new space is being developed.

A new bulwiengesa study, “Market Forecast 2020 – Berlin’s Future Office Users,” details how super-low vacancy rates of 3.5%, historically low office space completion rates and strong growth in office employment will all combine to deliver above-average rental price growth in the sector.

The strong and sustained demand is credited to the city’s structural economic evolution over the past five to ten years, combined with a rise in Berlin’s popularity worldwide. High tourist volumes, Berlin’s cultural attractiveness and increased domestic and international migration have all contributed to economic stability in Germany’s capital. If it wants to satisfy demand, attract would-be tenants in the long-term and encourage continued employment growth, Berlin will need to approve moderately denser urban development and strengthen its IT infrastructure.

Frankfurt’s residential real estate market is experiencing particularly strong growth. The city is not only benefitting from the generally favourable conditions that apply to all of Germany’s Top Seven cities, it also profits from its status as a global financial centre. With 215 banks and insurance companies, Frankfurt generates a per capita GDP that is more than twice as high as Hesse’s state average.

“Frankfurt’s residential market is without a doubt one of the most highly contested markets in the whole of Germany,” said Manfred Binsfeld from Feri Euro Rating, who identified strong levels of inward migration as one of the major drivers of housing competition.

The real estate industry is responding and there are a significant number of new residential developments currently under construction. One of the most prestigious is the “Grand Tower,” which is being developed by Zabel Property and includes 400 high-end apartments, a residents’ sun deck at 145 metres above street-level, and a range of supplementary services.

Finally, according to an analysis carried out by the Moses Mendelssohn Institute and the apartment listing portal WGGesucht.de, rental prices for a room in a shared apartment in one of the Germany university towns or cities with more than 5,000 students have risen significantly at the start of the new winter semester, increasing from EUR 300 to EUR 349 per month. The most expensive rooms in shared student apartments are in Munich (EUR 560), followed by Frankfurt (EUR 460), Hamburg (EUR 430), Stuttgart (EUR 425) and Berlin (EUR 420). Other towns and cities that have seen substantial rental price increases recently include Freiburg, Darmstadt, Constance and Dusseldorf.