Germany’s real estate in good health

The latest survey from the Cologne-based Institute of Economic Research I W has revealed that their economic index climbed to a record 89.5 points in Q4 2016, as reported by the Handelsblatt. The key factors for this outstanding result were identified as Germany’s stable economic growth, a further rise in employment, continued population growth and the historically low interest rate environment.

For this quarter’s survey, researchers also asked respondents to predict when they thought interest rates would be at least 1% higher than they currently are. Roughly 8% of respondents said that they expected this to happen during the course of the coming year, whereas 40% think that this could happen in 2018. Among property developers it was striking that, for the first time since Q3 2015, more respondents expect conditions to get worse rather than improve.

At the same time, the latest IVD BerlinBrandenburg Property Price Index reveals that the price of land, houses and condominiums in the region around Berlin have risen by 20% within the space of a year, according to Immobilien Zeitung. This applies in particular to areas within one kilometre of a commuter or regional train station with a direct link to the city, as well as to communities in areas around BerlinBrandenburg International Airport.

The highest prices were registered in Kleinmachnow on the southwestern border of Berlin, where a house costs an average of EUR 490,000 and building land averages EUR 350/sqm. Around Strausberg and Fredersdorf to the east, Oranienburg and Wandlitz to the north and Brieselang to the west, houses cost an average of EUR 250,000 and building land averages EUR 75/sqm. In Potsdam, house prices in upmarket, fair and good locations have risen by an average of 5.8% to EUR 430,000.

In less prosperous districts prices have risen more strongly, adding 12.5% over the last twelve months to reach EUR 200,000. Rents in fair to good neighbourhoods had risen by 11% by the end of the year, with the most expensive apartments costing EUR 12.50/sqm. The prices for mixed-use residential/commercial buildings in Potsdam rose by an average of 10% and now cost between EUR 1,100 and 2,900/sqm.

Frankfurt needs 40,000 more apartments, construction activity declines

According to bulwingesa’s new market study, Newbuild Apartment Building Developments, Frankfurt had a shortage of approximately 40,000 apartments in 2016, and that this shortage was coupled with a decrease in new construction activity.

Figures released by Frankfurt’s Housing Office show that there were 375,006 apartments for the city’s 415,054 households, which results in an arithmetical shortage of 40,048 apartments and results in a housing supply ratio of 90.4%. The study reported that the city’s housing shortage has been exacerbated by strong population growth.

Following a growth in apartment building in 2015, bulwiengesa reported that, between October 2015 and October 2016, construction activity declined by around 18%. The current annual report counts 2,741 apartments as under construction. The average weighted price of the developments analysed for the study stood at EUR 5,400/sqm, which is around 10% higher than at the same time one year earlier.

The most expensive project is the ‘F 39’ at the intersection of Wiesenau 36 and Friedrichstrasse 39-41 in Frankfurt’s Westend, which will see the completion of 19 apartments by Q3 2017 at a weighted average price of EUR 9,300/sqm, followed by The Flagship at Liebigstrasse 11 with 16 apartments at asking prices averaging EUR 8,800/sqm and the Grand Tower at Europa- Allee 2 with 401 apartments around EUR 8,700/sqm.

Residential towers such as the Grand Tower, the Porsche Design Tower or the Praedium boosted the average price level by an estimated 14%.

In order to prepare city authorities for their urban development decisions, Mike Josef (SPD) from Frankfurt’s planning department presented a range of possible scenarios to outline how Frankfurt could develop in the future. If the only approach adopted was to increase housing density, this would enable the construction of just 60,000 new apartments by 2030, whereas the city actually requires 90,000 new housing units. This would result in a significant proportion of the city’s population being forced to move out of the city, which would lead to massive changes in the character of numerous neighbourhoods. An alternative scenario assumed a requirement of 100,000 new apartments, which could be achieved via a combination of increased housing density, more building on the city’s outskirts and the construction of new urban quarters.

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