- Slower rent price growth expected
- Affordability for rent and purchase prices slightly improved at low levels
- Significant differences between locations in rent and purchase price development
- Transaction volume for multi-family houses increasing after a low point
Cushman & Wakefield, one of the largest real estate consulting firms worldwide, has published an overview of the developments and prospects of the German top-7 housing markets (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, and Stuttgart) for the first time. Both rent and purchase prices remain at a high level, albeit with different signs. While purchase prices for condominiums fell for a year and a half, slight price increases are now noticeable again. In contrast, the pace of rent price increases has slowed.
Rent Price Increase Slows Down
The trend of rising asking rents for apartments continued in 2024. However, the growth rates in the second half of the year were lower compared to the previous year and the first half of 2024. The annual growth of the median rent, which was still 8.4 percent at the end of 2023 and around ten percent in the first half of the year, was only 5.5 percent in the fourth quarter of 2024 compared to the previous year. The analysis of changes in individual quarters compared to the respective previous quarter shows some peculiarities. In the third quarter of 2024, there was even a slight decline in asking rents of 0.5 percent. However, in the fourth quarter, the values rose again by a moderate 0.9 percent.
Jan-Bastian Knod, Head of Residential Investment Germany and Head of Healthcare Advisory at Cushman & Wakefield: "For the short term, we expect a further slight weakening of rent price growth. Our expectation is based on the weak economy, the significantly cooling labor market, and the weakening immigration."
Cooling of Rent Price Growth in Berlin and Munich
In the rent price comparison of the top-7 markets, Munich is at the top for both new construction and existing buildings. The gap to the second-placed market (Frankfurt) is significantly higher for existing buildings at over 30 percent than for new construction at 7 to 8 percent compared to Hamburg and Berlin.
The analysis of rent growth rates shows some regional differences: While Frankfurt, Hamburg, and Düsseldorf still showed significantly increasing growth rates at the end of 2024 compared to the previous year, the percentage increase in Berlin and Munich decreased significantly year-on-year. Only in Stuttgart did rent price growth remain almost unchanged at +4.1 percent (Q4 2023 compared to Q4 2022: +3.9%).
No Relief for Tenant Households in Sight
Despite a minimal decline in so-called affordability (corresponding to the proportion of cold rent to net household income for an 80 m² apartment) by 0.2 percentage points each compared to the peak values of 2023 for new construction (to 35.2%) and existing buildings (to 26.2%), the burdens on households remain significant. "We assume that this burden will continue to move at a high level and tend to in-crease slightly," says Nicole Hock, Team Lead Residential Valuation at Cushman & Wakefield. The expert cites the economic slowdown in wage growth compared to the expected rent price increases, which are likely to be higher than the wage increase due to the supply shortage, as the reason. This could increase the average burden on tenant households.
Purchase Prices Rise Slightly in the Top-7 – With Significant Regional Differences
Between the fourth quarter of 2022 and the first quarter of 2024, the asking purchase prices for condominiums in the median (new construction and existing buildings) across all 7 cities fell by a total of 7 percent. By the end of 2024, sellers could already expect rising purchase prices again: in the fourth quarter of 2024, prices were 0.8 percent higher than a year earlier.
Munich Still Has the Highest Purchase Prices Despite a Sharp Decline
The comparison of the metropolises shows several different developments. The median asking prices in Frankfurt and Stuttgart were still below the previous year's level in the fourth quarter of 2024 (-2.1 and -1.6 percent). In the other five markets, slight to significant increases compared to the previous year were recorded. In Cologne, the offered prices have even been rising continuously from quarter to quarter for a year. The increase compared to the previous year in the cathedral city is almost 7 percent. The price dips in 2023 were also small there, as well as in Berlin and Hamburg. The asking prices in these metropolises fell by between 4 percent in Berlin and 7 percent in Cologne and Hamburg between 2022 and 2023. The declines were stronger in Stuttgart, Düsseldorf, Munich, and Frankfurt, where the median purchase prices reached their lowest point only in 2024 and fell by up to 13 percent (Frankfurt and Munich), 17 percent (Stuttgart), and 18 percent (Düsseldorf) from their peak values. In Frankfurt, a new low in the current price cycle was reached in the fourth quarter of 2024.
In the city ranking of prices, Munich remains by far the most expensive market, both in the existing and new construction segments. In the area of peak purchase prices for new construction, Hamburg is in second place. The median new construction purchase price is, however, the second highest in Stuttgart, and in the median for existing buildings, Frankfurt is in second place.
Purchase Prices Still Burden Households Significantly
Especially in new construction, affordability for purchase objects remains poor, with an average burden of net household income through interest and repayment of 55.3 percent in the model calculation for an 80 m² condominium. "Compared to 2023, the burden on income has reduced by almost 7 percentage points due to falling prices, rising wages, and lower financing interest rates. For an existing apartment, the burden through the financing rate is already slightly lower than in 2022 at 34.6 percent," says Nicole Hock.
Upward Trend in Transaction Volume of Multi-Family Houses
The transaction volume (only asset deals) for the year 2024 was approximately 10 percent above the previous year's level according to Cushman & Wakefield's projection for the data of the expert commit-tees for the top-7. We expect a volume of approximately 7.6 billion euros.
"The residential investment volume has not yet reached the old levels before the interest rate increase and is still below the sales achieved ten years ago, even without inflation adjustment. Nevertheless, the stabilization and slight upward trend show that the interest rate shock has now been largely absorbed by the market. Due to the good fundamental data and the positive demand development in the rental market, more transaction processes are being initiated again," says Jan-Bastian Knod.
Despite the difficult market situation, some large transactions were also completed, including the sale of the new construction project Konnekt in Berlin and the partial sale of the new construction project Welfengarten with 320 apartments in Munich Au-Haidhausen.
The averaged top-7 prime yield for multi-family houses (institutional product) has been stable at 3.91 percent for over a year. The range extends from 3.70 percent in Munich to 4.00 percent in Düsseldorf, Cologne, and Stuttgart. "The still high yields for long-term government bonds do not yet provide tailwind for falling yields in multi-family houses," says Knod.
