Colliers Report Germany: Residential/Commercial Mix Property Market Gains Momentum
The investment market for Residential/Commercial Mix Properties has stabilised. Purchase prices had fallen by an average of 33 percent since their highs in the 52 cities monitored by Colliers. The phase of falling prices is largely over in most cities. The investment market for apartment buildings is picking up speed again. This is the result of the new report "Residential Investment 2024/2025: Residential/Commercial Mix Properties at a Glance".
"Investors are increasingly evaluating the price level that has now been reached as attractive and are using it to re-enter the market," says Felix von Saucken, Head of Residential Germany at Colliers. "Falling new construction figures and rising rents will reinforce this trend. In the long term, housing remains a megatrend from an investor's point of view."
General conditions for investments are steadily improving
In the seven metropolises of Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Stuttgart and Munich, the transaction volume in the residential and commercial buildings segment fell by around 28 percent from 2022 to 2023. In the meantime, demand is rising again. On the buyer side, there are currently mainly so-called semi-professional investors (wealthy individuals and family offices). The general conditions – a constantly higher demand for housing, expected falling financing costs and rising rents – will ensure a steady revival of transaction activity. Prime yields in the seven top cities currently remain at an average of 3.85 percent.
Rents rise at record pace
In the first half of 2024, residential rents rose at an above-average rate and also faster than disposable household incomes. Rents for newly built apartments rose by an average of 7 percent in the seven metropolises mentioned within twelve months to mid-2024. In the 50 largest cities, they rose by 8 percent. This means that the pace has once again accelerated significantly compared to the first half of 2023. At that time, the average rents in the top 50 cities for first-time occupancy had risen by "only" 4 percent within six months.
Rents are driven by sustained population growth and an increase in household numbers, especially in the top cities. The seven largest metropolises have recorded a total of more than three million arrivals in the past five years. "Even though immigration has slowed down somewhat in 2023, the overall pressure to move to the metropolises remains high, driving demand for housing," says Felix von Saucken.
The already insufficient supply will not grow accordingly. In 2023, building permits had fallen very significantly by 27 percent compared to the previous year. This trend continues unabated: In the first half of 2024, the number of permits shrank by another 21 percent compared to the same period last year. "New residential construction has collapsed massively. There are no signs of a turnaround," predicts Felix von Saucken.
Rental apartments are becoming increasingly scarce
The supply of apartments offered for rent is already declining: In Germany's 50 largest cities, it fell by a total of 4 percent in the last twelve months. A shift in the supply structure can also be observed: The availability of rental apartments with two to five rooms decreased by nine percent. The supply of micro-apartments, serviced apartments and comparable forms of housing, on the other hand, increased by 6 percent.
Subsidised housing is a special case: The supply of social housing has been shrinking dramatically for years, from around 2.9 million units after reunification to only around one million now. This development will continue at the expense of low-income households. "In order to be able to meet the housing needs of this target group, it is essential to promote social housing more effectively," says Felix von Saucken.
You can download the complete analysis of the housing markets in the 52 largest German cities as well as the additional topic report on housing below:
https://www.colliers.de/residential-investment-en/
