There is little doubt now that the near-absence of a functioning investment market for German residential housing is having an unpleasant side-effect for tenants - in that it is steadily pushing up the level of rents on new leases, both in German cities and in their surrounding hinterlands.
While the multi-year boom in residential housing prices is acknowledged to be over, with evidence of small actual price falls in most cities (except Berlin), the trend towards ever-higher rents continues unabated. For years, German house prices had been outstripping the rate of rent increases. No longer.
Tobias Hartmann, CEO of Germany's biggest property portal Immoscout24, with access to a vast range of price trends, said recently, "We're expecting continued rental price increases on the German rental market."
Broker JLL is documenting the steady acceleration of rental prices across the biggest eight cities - Berlin, Munich, Hamburg, Cologne, Frankfurt, Düsseldorf, Stuttgart and Leipzig - and saw rents rise 6.3% in the second half of 2022 over the same period a year before, during which time purchase prices rose only by 1.6%. Rents are rising fastest in Berlin, with a jump of a whopping 27% (on new leases) since November, according to property portal Immowelt. Berlin is now the second most expensive city to rent in, after Munich.
A study by property portal Immowelt shows that 12 of the largest cities in Germany have seen rent increases of more than 10% since 2018, with much of that coming in the last two years. Based on a standard apartment (80 sqm, 3 rooms, 2nd floor), the biggest rise was in Berlin (up 34%), followed by Leipzig (+24%), and Bremen and Cologne (+21% each). The smallest increase was in Dortmund (+6%) and Stuttgart (+/- 0%). The inflation rate over the period was 19%.
The Immowelt authors put the disproportionate rise in rents in Berlin down to two factors: the city has been a major recipient of refugees from the war in the Ukraine, and the after-effects of the collapsed attempt to impose a rent cap on the city - a measure which was subsequently thrown out as being unconstitutional by Germany's Supreme Court.
Lukas Siebenkotten, president, German Tenants' Association
The Deutsche Mieterbund (German Tenants Association) recently warned of further rent rises ahead. Association president Lukas Siebenkotten said in an interview with Funke Mediengruppe that people should be under no illusion as to the direction of travel. "Anything that is at all legal will be exploited to the hilt to increase rents over the coming years... Rents are going to be rising much faster than pay rises," he said.
It's not just in the big cities that rents are headed determinedly upwards. Recent figures from Immoscout show that more people moved out of big cities than at any time since 1994. Demand for housing in suburban areas has risen on average 23% since the beginning of this year, without falling in the big cities - where the competition for each apartment is six times higher.
Some small provincial towns have seen extraordinary increase in demand, such as Gera in Thuringia, about an hour away from Leipzig by train, where demand has jumped by 350% in the last 12 months. Or Altenburger Land, likewise only 45 minutes from Leipzig by train, where demand has surged 300%. In both Gera (average rent €5.62 per sqm/month) and Altenburger Land (€5.44 per sqm/month), the rents are considerably cheaper than in Leipzig, at €7.75 per sqm. This corresponds to 24 sqm more of living space in Gera and 35 sqm more in Altenburger Land - compelling arguments for many, particularly those with small children.
Given the margin by which the German coalition government has been missing its house-building goals, people are obviously locking in those lower rents in the more rural areas before they too become almost unaffordable.
Still modest by European standards
To put all this in a European perspective - it's important to realise that while these rent increases have a big effect on Germans, rents in other European countries, in particular the big cities, are often much higher than they are in Germany. Even Munich, at an average rent of €20.00 per sqm/month, is still reasonable compared to London or Geneva.
A recent survey by Catella of 63 cities in 20 different European countries puts the average rent at €17.25 per sqm/month, although there are wide divergences. At the top end of the price scale would be London (€33.10), Geneva (€31.00) and Luxembourg (€30.00), whereas Liège in Belgium (€9.50) or Brno in the Czech Republic (€10.00) would be at the more modest end.
Also towards the upper end would be cities like Amsterdam, Oslo, Dublin, Paris and Zürich, all averaging around €25.00. By comparison, German cities are priced well below this, with Munich (€21.50), Frankfurt (€16.75), Berlin (€16.00), Hamburg (€14.50), Cologne (€14.50), and Düsseldorf (€12.60) all firmly in the lower half of the league table.
The Catella study also measures the affordability of an apartment as a function of average incomes prevailing in a given city, or how much housing can inhabitants afford on basic rent, based on a benchmark of a quarter of their net household disposable income. Here again there were wide regional differences.
For potential buyers, the range also varies widely - from €1,720 per sqm in Lahti, Finland, to €15,350 in Geneva. The average purchase price for a freehold apartment in Europe (both old and new-build) is €5,235 per sqm, with all the big German cities more expensive than this - Cologne at €5.050 per sqm, Hamburg at €6,350, and Munich €9, 600.
The Catella study points to Vilnius, Riga, Krakow and Wroclaw as having currently attractive entry points, returning yields of more than 5% on average there.
