Moritz Sirowatka
Frankfurt by night
Of course, the biggest cities, such as Munich, Berlin, Hamburg and Frankfurt represent the safest investment from an investor’s point of view, where although the prices have risen in the last few years faster than the rents, yields have also fallen correspondingly.
Augsburg, Offenbach and Darmstadt offer the most attractive perspectives for property investors in Germany, from the point of view of low market risk and above average yields. What they also have in common is that they are mid-sized cities bordering on a significant German commercial metropolis.
These are among the key findings of a new market study by researchers BulwienGesa and commissioned by Deutsche Invest Immobilien (dii) which highlights the potential of investment in Germany’s so-called C-cities – the third-ranked league of cities in the A-, B-, C- and D-city ranking often used to categorise Germany’s local investment markets.
Of course, the biggest cities, such as Munich, Berlin, Hamburg and Frankfurt represent the safest investment from an investor’s point of view, where although the prices have risen in the last few years faster than the rents, yields have also fallen correspondingly. Still, of the €15.4m invested last year, 42% of it was invested in the Big 7 cities, a clear statement of investors’ preferences.
And in terms of safety, Munich, Stuttgart and Frankfurt made up three of the four cities with the safest profile. But interestingly, the fourth – Freiburg im Bresgau – is generally classified as a C-city. But its preponderance of employees with third-level qualifications, chronic housing shortage, and accessibility, give it more of an A-city profile for investment purposes. And its median yield of 3.4% is better than the 3% in the A-cities. Other cities which performed well versus the Big 7 were Regensburg, Heidelberg and Mainz.
For example, the median yield in Berlin, the weakest of the big cities, is 2.9%. In other words, half the apartment units yield more, and half yield less than this figure. By contrast, Augsburg in Bavaria, close by Munich, offers a median yield of 4.5%.
The study examined 43 cities closely for their investment appeal. This was determined on the basis of two parts; the analysts examined the city’s profile in terms of market risk, based on factors such as interest rate, regional economic aspects, or the proximity to a mainline ICE train connection. Expected yields were added in to the mix, and the presumption was a selling period after ten years. (Expected yields are computed based on scenario-based IRR calculations).
The researchers claim that it is notable how the so-called C-cities performed better than the B-cities. By their calculations cities such as Leipzig and Münster performed less well than cities such as Augsburg (bordering Munich) and Offenbach (beside Frankfurt am Main).
Of the cities surveyed, the worst in terms of market risk was the C-city Magdeburg and the B-cities Bochum and Duisburg. The best of the B-cities were Nüremberg, Karlsruhe, Wiesbaden, Münster and Bonn.
For Frank Wojtalewicz, CEO of dii, the study throws up a clear message about the attractiveness of investment opportunities close to the big conurbations. “Given the current market situation – with ongoing low interest rates and increased demand for residential housing – rents and prices have been hitting record levels. The results of the study make clear that even locations which till now have been overlooked by investors, can offer attractive prospects. And buying expensively does not always mean taking on higher risk.”
