Housing: Study: Rents in metropolitan areas are rising sharply

An unbroken demand for living space, a crisis in new construction and hesitant real estate buyers: According to a study, the pressure on the rental market in German metropolises has increased.

Housing: Study: Rents in metropolitan areas are rising sharply

An unbroken demand for living space, a crisis in new construction and hesitant real estate buyers: According to a study, the pressure on the rental market in German metropolises has increased.

In the first half of the year, asking rents in Berlin, Hamburg, Munich, Cologne, Frankfurt, Dusseldorf, Stuttgart and Leipzig rose by an average of 6.7 percent, according to an analysis by real estate specialist Jones Lang LaSalle (JLL). In the same period of the previous year, the increase in rents for the new buildings and existing apartments under review was still 3.7 percent.

"In all of the metropolises considered, there is an enormous shortage of supply, which will be exacerbated by the faltering housing construction," said JLL residential real estate expert Roman Heidrich. "There is therefore no end in sight to the rent increases." Pressure also comes from increased interest rates on loans, which discourage interested parties from buying real estate and push them into the rental market.

The Berlin housing market is getting tighter and tighter

Asking rents increased particularly strongly in Berlin and Leipzig, where, according to the study, double-digit percentage increases were recorded - in the capital, JLL saw an increase of 16.7 percent. In Berlin there was a net immigration of 86,000 people in 2022, while only a good 17,000 apartments were completed, said Heidrich. The Berlin housing market is getting tighter and tighter. In addition, people with cheap rental contracts shy away from moving. "This increases the pressure on the few vacant apartments."

Rent increases were much more moderate in the other major cities, and asking rents even fell slightly in Stuttgart. Asking rents do not yet mean a deal, sometimes the agreed rent deviates from this - but this is less common than when buying a property.

According to JLL, the increase in rents in the metropolises was stronger than in the independent cities and districts, although the increases were also noticeable there at plus 2.7 and 4.9 percent respectively.

The stagnant housing construction drives up the rent

The study also shows how expensive living in the eight metropolises is: Rental apartments there, at EUR 15.38 per square meter, were on average around 50 percent more expensive than in urban districts (EUR 10) and 79 percent more expensive than in the rural districts (EUR 8.61).

The sharp rise in rents comes as no surprise. The Association of German Pfandbrief Banks and the Institute of German Economics had also seen great pressure on the rental market in recent months, which was being intensified by the immigration of refugees from the Ukraine.

In addition, housing construction is faltering. According to the Ifo Institute, many projects are being canceled due to the rise in interest rates and high construction prices, and the federal government's goal of 400,000 new apartments per year is considered unattainable. Associations of the housing and construction industry only expect around 245,000 completions this year.

"Since the population is growing through immigration, most recently by over a million people in 2022, this new building is not enough," the Federal Association of Volksbanken and Raiffeisenbanken stated on Tuesday. "The pressure on the rental market is increasing accordingly."

Residential real estate is becoming cheaper

During the real estate boom, purchase prices had risen faster than rents for years, but with the sharp rise in interest rates, prices are now under pressure. According to the JLL figures, the quoted data prices for apartments fell by 7 percent in the first half of the year. In the same period last year, there was an increase of 7.5 percent.

According to the study, there were significant price declines in almost all of the metropolises considered in the first half of the year - the sharpest in Munich, Stuttgart and Düsseldorf at around ten percent. An exception is Berlin, where apartments are still slightly more expensive. According to JLL, prices in the independent cities (-5.2 percent) and rural districts (-2.2 percent) fell less than in the metropolises as a whole.

Offer prices do not provide precise information about the actual purchase price. "The property market reports of the expert committees, for which real purchase cases are evaluated, sometimes show significantly higher price reductions," said JLL expert Sebastian Grimm.

Residential real estate prices in Germany have been falling for months. According to the Federal Statistical Office, they fell in the first quarter by 6.8 percent compared to the same quarter of the previous year - it was the sharpest decline in 23 years. Official figures for the second quarter are still pending.

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