pro_creator/Envato
The latest ImmoScout24 study reveals a significant surge in ancillary costs (Mietnebenkosten) across Germany, highlighting a pivotal trend for investors in residential real estate. Known as the “second rent,” these operating costs—paid on top of base rent—are becoming a critical factor in tenant affordability, especially in urban centers and older buildings.
For definition, Mietnebenkosten refers to the costs that transform the “cold rent” (Kaltmiete) into the “warm rent” (Warmmiete), or total rent with utilities. As these secondary costs rise, the financial burden on tenants grows—alongside potential risks, but maybe some opportunities for investors.
Between the first quarter of 2022 and the third quarter of 2024, ancillary costs for tenants living in existing properties rose by an average of 16.7%, according to the leading property portal ImmoScout24. In Germany’s eight largest cities, the increase is even higher, reaching 20.2%. “Rising energy prices, inflation, and higher wage costs are driving up utility costs,” says Gesa Crockford, Managing Director at ImmoScout24. This cost escalation is most severe in older, less energy-efficient buildings, where tenants have seen their monthly outlay increase disproportionately.
For new buildings, the rise in ancillary costs is somewhat milder, at 10.9% across Germany. Despite being more energy-efficient, new constructions often have higher maintenance costs, with features like lifts and underground car parks contributing to increased expenses.
Consequently, ancillary costs for both new and older properties average around €2.50 per square meter. However, in Germany’s metropolitan areas, this figure jumps to €3.45 per square meter for existing buildings and €3.48 for new constructions, underscoring the urban-rural divide and the cost premium city tenants pay for utility access.
Notable regional differences
The ImmoScout24 study highlights notable regional differences in Mietnebenkosten. For a standard 70-square-meter apartment in a metropolitan area, tenants pay roughly €35.70 more per month in ancillary costs than those in rural areas, amounting to €428.50 more per year. This “urban premium” reflects the higher base costs in cities, driven by factors like increased wages for service providers and more frequent maintenance demands. City dwellers, already stretched by elevated base rents, bear a double financial strain, leading to what Crockford calls a “double housing cost burden.”
Outside major cities, ancillary costs represent a higher percentage of total rent. In rural areas, these expenses account for 24.8% of total rent for older properties and 18.1% for new builds, compared to 19.5% and 15.5%, respectively, in urban areas. This imbalance reflects the elevated cost of services in cities, such as cleaning, maintenance, and caretaker services.
Energy costs remain the most significant contributor to rising Mietnebenkosten. Following the 2022 energy crisis and Russia’s invasion of Ukraine, German households have been hit particularly hard by elevated heating costs. “Tenants are already suffering from rising rents, and with ancillary costs increasing on top of that, the housing cost burden is becoming unsustainable,” Crockford notes. ImmoScout24’s data indicates that additional costs are expected to remain high despite recent dips in gas prices.
Rise in pre-payments anticipated
A recent ImmoScout24 survey of 815 private landlords reveals that more than two-thirds anticipate increasing advance payments for ancillary costs, driven by inflation and higher prices for outsourced services. For investors, this signals a notable rise in operational expenses, potentially impacting yields and property values, particularly for older properties with high energy consumption.
For investors in German real estate, rising ancillary costs present both risks and opportunities. Properties with outdated heating systems and poor insulation may see ancillary costs outpace rent increases, eroding yield. The disparity in costs between older and newer properties is likely to affect demand, as energy-efficient new builds become more attractive to tenants seeking to minimize monthly expenses.
With ancillary costs now making up as much as 24.8% of rent, investors must also consider the long-term implications for tenant affordability and stability. Lower-income tenants, already stretched by high rents, may turn to alternative housing options or relocate to less desirable neighborhoods as ancillary costs grow unsustainable.
As ancillary costs continue to climb, value-add investors have a clear opportunity to enhance asset value through targeted renovations. Energy-efficient retrofits and modernization projects can help curb the rise in Mietnebenkosten, making properties more attractive to tenants who prioritize utility savings. In an era where utility costs heavily influence rental affordability, assets with lower Mietnebenkosten may command a premium.
Further pending regulations to add to expenses
Upcoming regulations also hold implications for investor strategy. For instance, Germany’s Heating Act mandates an imminent shift to renewable heating systems, potentially offering incentives for upgrading to renewable heating options. These policies and regulatory changes will definitely have an impact on property expenses and tenant demand.
With ancillary costs rising at an unprecedented rate, ImmoScout24’s findings underscore a key trend in the German rental market. The financial strain on tenants, particularly in urban areas, is intensifying. As ancillary costs consume a greater share of disposable income, demand for affordable, energy-efficient housing will certainly grow, shifting market dynamics in favour of upgraded, modernised properties.
The “second rent” will continue to shape tenant preferences and property values. Investors focused on Germany’s residential market will need to account for this trend in their investment strategies, particularly in pricing, tenant demand analysis, and asset management decisions. In the words of Crockford, “The housing cost burden is increasing twice over.” For real estate professionals, the message is clear: optimising Mietnebenkosten could be key to staying competitive in Germany’s tightening residential market.
