Research
H1 2024
Decline in purchase prices for condominiums significantly mitigated in the first half of the year
August 30, 2024
Berlin
Rental supply plummets, housing demand remains high
In 2023, the population of Berlin grew by +0.7% compared to the previous year. Currently, around 3.878 million people live in Berlin. The number of new arrivals (187,971) was the third highest since 1991 in the capital. In particular, arrivals from abroad, with approximately +53,144 from overseas, account for the persistently positive migration balance. This puts increasing pressure on the housing market as demand has grown more robust than supply.
This becomes particularly clear when looking at the number of housing completions and building permits granted. In Berlin, a total of 15,965 flats were completed in 2023, a decline of -7.8% compared to the previous year. Most of the new flats were completed in the district of Lichtenberg (3,410), the fewest in Steglitz-Zehlendorf (345). This was significantly below the political target of 20,000 new flats per year, as has been the case in previous years.
There was also a decline in building permits: A total of 15,902 building permits were granted in 2023, -6.3% less than in 2022 (16,968 building permits). Due to the decline in building permits, it can be assumed that the number of completions will continue to drop in the coming years. Of the total 15,965 completions, 4,340 were subsidized flats.
The imbalance between supply and demand has particularly put pressure on rental price development. Against this background, the city of Berlin has adopted various regulatory measures such as the rental price brake, the capping limit, and milieu protection regulations to curb the rise in rents in the housing market and stimulate new housing construction.
To support the latter, the Berlin Senate approved the draft for an "Acceleration Act" in June 2024. The law aims to introduce shortened deadlines and new standards for new buildings primarily. Measures include streamlining and standardizing planning and approval procedures, introducing inspection and processing deadlines, and a clearer regulation of responsibilities between the state and district levels.
Dusseldorf
Stagnant housing construction due to high construction costs
Due to persistently high construction costs and interest rates, housing construction in Düsseldorf came to a standstill in the first half of 2024. To rekindle house construction and provide new impetus, the city of Düsseldorf is planning the development of new funding programs. For this, a double-digit million amount will be made available every year in the future. In addition, the city wants to create a total of 8,000 new affordable apartments in the city area by 2030.
Looking at the development of housing supply, this continues to be necessary. Although in 2023, a total of 2,063 apartments were completed, representing a decrease of -3.6% compared to the previous year, this result is considerably below the five-year average of approximately 2,294 completed apartments per year. Especially, the increasing interest rates and costs of construction have led to a significant decrease in construction work and led to many projects being stopped and project developers acting cautiously and reticently for new projects. On the other hand, an increase was detected in the granted building permits. In 2023, a total of 2,251 permits were granted, which is an increase of about +2.8% compared to the previous year. Despite this increase, the number of building permits issued is considerably below the level before the Corona pandemic, when an average of 3,800 apartments were permitted per year.
To relieve the housing markets under strain, large housing construction projects in Düsseldorf should contribute. One such example are the seven properties of the Adler Group, where up to 5,000 new housing units are to be created. Approximately half of them are expected to be erected behind the main station in Grand Central and in the Glasmacherviertel in Gerresheim. Also, in Belsenpark II, up to 1,000 apartments are expected to be built in the next years.
Frankfurt am Main
First signs of market stabilization without reaching previous peak levels
Despite the still difficult economic and political framework conditions, the housing market in Frankfurt am Main shows the first signs of stabilisation. Although property prices have fallen sharply in recent months by -6,5% compared to the previous year, construction activity has increasingly come to a standstill.
Despite this difficult market situation, in 2023, a total of 3,661 apartments were completed. This corresponds to an increase of +24% compared to the previous year, and the figure is also slightly above the ten-year average. However, the reluctance of project developers in new residential construction is affecting the building permits and thus the expected completion level in Frankfurt in the coming years. In 2023, only 3,205 building permits were granted for new apartments, which is a decrease of approximately -30 % compared to the previous year and the lowest figure since 2010.
In 2023, 459 of the approved apartments were for the conversion of office and commercial space. Although this figure is just below the previous year’s level of 463 conversions, it is well below the peak in 2018 when 1,985 apartments were created in former office buildings. The conversion not only made use of already built-up areas but also preserved the existing building substance.
The City of Frankfurt am Main is currently working on the further development of municipal funding programmes and the designation of further building areas. These measures are intended to ensure that more new apartments are in demand again despite the difficult market situation. Approximately 250 million Euros are available in the 2024/25 budget for subsidised housing construction.
Hamburg
Completions in Hanseatic city at ten-year low
In 2023, housing construction in Hamburg reached a low point, with few apartments finalized. A total of 5,999 apartments were completed, representing a decline of -35% compared to the previous year. This is the largest negative development in the city comparison. In relative terms, too, Hamburg ranks last with 31 completed apartments per 10,000 inhabitants.
A similar trend is observable in building permits: In 2023, only 5,257 building permits were issued. This means the city is far from its self-imposed target of 10,000 building permits per year and with a decline of -43%, significantly below the previous year's figure of 9,199 permits. This is remarkable considering that, just a few years ago, Hamburg had the highest building activity among the Big 8. For instance, approximately 61 apartments per 10,000 inhabitants were finalized in the first pandemic year of 2020. Additionally, there is currently a construction backlog of a total of 24,404 apartments that have been permitted but not yet built. By the end of 2023, over 9,500 apartments were under construction, almost 7,800 were being built, and nearly 5,500 were in the structural work phase.
Hamburg's housing market is marked by a strong excess of demand. Hamburg's population grew by +1.0% in 2023 and currently stands at 1.964 million inhabitants. According to projections, the population will increase to 2.024 million by 2040 and is expected to surpass the two million mark for the first time as early as 2023. The forecasted further population growth is primarily based on the continued expected migration gains.
To make housing affordable for households with medium income, the City of Hamburg has expanded the existing funding instruments to include a third funding path on April 1, 2024, with an initial net cold rent of €12.10/sqm/month. Single individuals with a net annual income of up to €28,800 and a three-person family with an income limit of €55,400 are among those who are eligible for an apartment under the third path. Investors, according to the guidelines of the Investment and Promotion Bank (IFB), like the first and second funding path, can receive loans with a fixed interest rate of one percent for 30 years and one-time construction cost grants.
Cologne
Continued strained housing market with little vacancy and stagnating construction activity
The City of Köln has been seeing a steady population increase for years now, only briefly being interrupted by the pandemic in 2020 and 2021. At the end of 2023, the population count was approximately 1,095,520, a growth of +0.3% from the previous year. Specifically, the young adult population under 30 years old and persons moving from other countries have driven this growth. By 2035, the population is expected to grow further to 1.11 million residents. This projected increase will lead to an ongoing demand for living space.
This population increase is contrasted by the stagnation of housing construction in recent years. On average, in the years from 2017 to 2022, approximately 3,100 apartments were permitted, around 2,500 were completed and about 8,300 were part of the construction backlog. In 2023, however, there was positive growth: The number of building permits with 3,211 and completed apartments with 3,533 were both above the five-year average, and in comparison to the previous year, even +52 % more apartments were completed.
The construction backlog has shrunk in comparison to 2022 by -5 % and is currently at 9,415 apartments. In a comparison with the other Big 8 cities, Köln ranks fourth with around 32 completed apartments per 10,000 inhabitants behind Berlin (41 apartments per 10,000 inhabitants), Frankfurt (48) and Munich (62). However, the issued building permits show a slightly different picture in the city comparison: With only 29 building permits per 10,000 inhabitants, Köln is in the lower third. The last places are taken by Stuttgart with 18 and Hamburg with 27 building permits per 10,000 inhabitants.
The city of Köln is aiming to create and maintain affordable living quarters and is being supported by the housing promotion programme 2024 of the state North Rhine-Westfalia, which comes with at least 100 million Euros in funding. This corresponds to an increase by five million Euros compared to the previous year.
In the district Köln-Marienburg, the new living quarter "The Wave" is being planned, with about 750 housing units to be built on an area of 52,600 square meters. Until 2003, the property was the former location of the "Deutsche Welle" and was mainly used as office space. The challenges for developing the new residential area were the demolition of the massive, asbestos-contaminated high-rise towers and the separation of building parts. The completion of the residential quarter is planned for the beginning of 2026.
Leipzig
New housing policy concept to boost housing construction in Leipzig
The housing market in Leipzig is currently in an acute crisis: The housing shortage in Leipzig is comparable to the situation after reunification about 30 years ago. There is not enough supply for relocations or newcomers, so overall fluctuation is low.
A decisive factor for the current housing shortage is the ongoing migration to Leipzig. Over the past five years, Leipzig's population has grown by a total of +5.4%. The Leipzig housing market has been experiencing a tightening of the supply-demand ratio for years.
The number of housing completions has fluctuated over the past five years. In 2020, a record number of 3,372 homes were completed. This equates to about +43% more homes completed than in 2019. In the following years of the pandemic, the number of completed homes decreased back to an average level of around 2,300 homes. In 2023, the number decreased by -3.8% compared to 2022. This corresponds to about 41 completed apartments per 10,000 inhabitants and, compared to the other Big 8 cities, Leipzig is among the front runners behind Munich (62 completed homes per 10,000 inhabitants) and Frankfurt (48). Reasons for this include sharply rising energy prices and high interest rates. As a result, many construction projects have become unprofitable or even stopped. Also, the number of building permits issued in 2023 decreased by -27% compared to the previous year, totaling 2,287 building permits.
To counteract this trend, the city of Leipzig updated its housing policy concept in the first half of 2024. On this basis, the city wants to secure affordable housing in all districts of Leipzig and create new housing even in times when housing construction is faltering. As part of the revised concept, the housing supply is to be increased and improved through strategic land acquisition, social preservation statutes, and social housing support.
Munich
Stabilization of Prices but Continued High Demand for Housing
Munich continues to be one of the most attractive residential locations, both nationally and internationally, and continues to attract more people. By 2023, nearly 1.6 million people lived in the Bavarian capital city. The steady population growth was only temporarily slowed down by the pandemic. According to population projections, the city of Munich's population will grow to a total of 1.812 million inhabitants by 2040, so the demand for housing will continue to be high in the future.
In 2023, a total of 9.837 apartments were completed, which corresponds to an increase of +31% compared to the previous year. Even in relative terms with the other Big 8 cities, Munich is at the top with approximately 62 completed apartments per 10,000 inhabitants. The local construction commission granted 9.083 building permits in the past year, which is an increase of +12.3% compared to the previous year. In the last five years, on average, just under 9.700 apartments were approved per year. However, on Munich's housing market, the additional need for housing units still exceeds the level of completion.
On the supply side, rising construction costs and difficult conditions on the capital and credit market have led to the fact that planned construction projects were either stopped or delayed. To cope with challenges in the construction area, Munich's city council has provided two billion euros for subsidized and climate-friendly living space in the housing action plan "Wohnen in München VII" by 2028. The programs have recently been significantly increased financially. Large-scale projects, however, continue to be planned in Munich.
For the next three years, three housing construction projects with a total of about 2.500 apartments are planned. In the west of Munich, a new residential quarter is planned between Freiham Nord and Aubing, along the Eichenauer street. The city council has voted on the area, previously used for agricultural purposes, for the construction of up to 1.200 apartments. In addition, in the district Bogenhausen, a new residential area with around 500 apartments will emerge. But also, the former US the settlement at Perlacher Forst should gradually be condensed to create affordable living space.
Stuttgart
Completions back to pre-Corona level, building permits at a ten-year low
The Stuttgart housing market is currently showing countervailing trends, as in the other Big 8 cities: while the mood in the housing market remains subdued, there is a rising demand observed on the rental apartment market. The reluctance of first-time buyers in the housing market leads to a lower fluctuation and thus less availability of rental apartments.
In 2023, there was at least a positive development in housing completions. With a total of 1,891 completed apartments, the long-term negative trend was stopped and the completion level, which corresponds to the situation before the Corona pandemic, was reached. Compared to the previous year, this equates to an increase of around +86%. At the same time, the existing construction backlog decreased by approximately -17% compared to the previous year.
However, the picture is different for building permits. In 2023, only 1,092 building permits were granted, corresponding to a 6% decrease compared to 2022. This represents the lowest value of the last ten years. Stuttgart is behind in the city comparison for granted building permits. With only 19 building permits per 10,000 residents, the city is significantly behind. In this category, Cologne is leading with 57 building permits per 10,000 residents. The continuously falling numbers of building permits and the pipeline in housing construction could lead to a significant decrease in completions in the coming years, leading to further housing shortages.
To counter this development, the city of Stuttgart plans to enable the construction of 20,000 apartments by 2033. Besides the passing of new development plans, the proportion of social housing units in newly developed units will be fixed at 30% in cooperation with the private housing industry. Moreover, 10% of the apartments should be offered below the local market average rental, or as cost-effective condominiums or rental apartments for households with a medium income.
Number of completed apartments and building permits declining
Despite high demand for housing, both building permits and completions are declining. The reasons for this are not only the ongoing lack of suitable land for construction but also high interest rates and construction costs. Last year, a total of 294,400 apartments were completed, representing a decrease of approximately -0.3% compared to the previous year.
The target of constructing 400,000 new housing units was clearly missed in 2023 as well. The creation of affordable housing in German cities and metropolitan areas remains a major challenge. Many construction projects, especially in residential construction, have been postponed or canceled due to the increased interest rates and construction costs over the past two years. On the one hand, new orders were lacking, and on the other, planned projects were canceled.
Although the number of completed apartments has hardly changed since 2021 (2021: 293,400; 2022: 295,300), a decline in completions is expected with a time lag. It is likely that a large portion of the recently completed apartments can be attributed to building permits that were applied for and issued under much more favorable conditions until 2022. Additionally, the time span between receiving a building permit and completion of the apartments completed in 2023 extended by four months to a total of 24 months compared to 2020.
The number of building permits issued in 2023 decreased by -26.7% compared to the previous year, reaching 259,600 and therefore significantly below the number of completed apartments. As a result, the backlog of construction projects decreased for the first time since 2008, by 58,100 to 826,800 apartments compared to the previous year. Of these, 390,900 apartments were already under construction, while 214,500 apartments were "under roof" or in the shell construction phase.
The decrease in the backlog is partly due to a high number of expired building permits, which typically have a validity period of several years. In 2023, 22,700 permits expired. In 2022, the highest number of expired permits since 2006 was recorded, with 22,800.
Metropolises continue to be the focus of immigration
On the demand side, there continues to be steady demand growth with high immigration. However, in 2023, this was lower than the previous year, mainly due to a lower number of refugees from Ukraine coming to Germany. The war against Ukraine in 2022 had led to a strong influx into Germany, but this immigration has now more than halved. In total, around 1.9 million people immigrated to Germany in 2023, and approximately 1.27 million people emigrated from Germany. Despite the significant decrease compared to the previous year, the net migration balance remains at a historically high level. Only in 2022, 2015, and 1992 was this value exceeded.
Metropolitan regions continue to be the focus of international immigration. These regions already have the most unfavorable supply-demand ratios. On the other hand, the recently increased wages have led to improved affordability and a significant increase in new contract rents. Along with the current high population growth, market-active vacancies in Germany have decreased over the past ten years. The strongest decrease, with -0.3%, was recorded between 2021 and 2022.
The imbalance between supply and demand remains significant in 2023, which has significant implications for the efficiency of the rental housing market. The increasing discrepancy between existing and new contract rents reduces tenants' motivation to change apartments when demand changes. As a result, with rapidly rising new contract rents, the number of relocations and the number of advertised rental offers continue to decrease. This further intensifies the pressure on rental prices and leads to a reinforcing downward spiral.
Continued Rising Rents in Metropolises in the First Half of the Year
In the first half of 2024, rental prices continued to show a positive trend. In the examined Big 8 cities, the rental development remains at a high level and above the five-year average (+5.0 percent). However, the increase compared to the previous half-year is smaller. In that period, an increase of +8.2 percent compared to the previous year was observed. Nevertheless, there are some markets that have experienced an accelerated rental price development in the first half of the year.
Significant acceleration in average total rents compared to the previous year was observed in the markets of Frankfurt (Main) and Düsseldorf. In the first half of 2024, rents increased by +9.4 percent and +7.0 percent, respectively. In Frankfurt (Main), the average total rent is €17.72 per square meter per month, while in Düsseldorf, it is €13.91 per square meter per month. The rental housing market in Berlin continues to experience the strongest rental price growth, with an increase of +11.4 percent compared to the previous year. The average total rent here is €19.50 per square meter per month, although the increase has slightly weakened compared to the previous year (+16.7 percent).
The weakest rental development compared to the previous year was recorded in Munich (+3.2 percent) and Cologne (+1.4 percent). While the development in Munich was approximately at the level of the previous year (+3.5 percent), the previous year's development in Cologne was slightly higher at around +5.2 percent.
The highest rental level is still found in Munich, where apartments are advertised for an average of €22.96 per square meter per month. Berlin follows with €19.50 per square meter per month, followed by Frankfurt (€17.72 per square meter per month) and Stuttgart (€16.15 per square meter per month). Leipzig is the most affordable rental housing market after Düsseldorf (€13.91 per square meter per month), with an average of €9.80 per square meter per month.
In contrast to the development of average asking rents, the development of prime rents is slightly more downward. In the first half of 2024, prime rents in all Big 8 cities increased by +4.4 percent on average, which is significantly lower than the development in the previous half-year (+8.2 percent) and the five-year average (+4.5 percent). However, there was again a significant acceleration in prime rents in the rental housing markets of Frankfurt (Main) and Düsseldorf, with increases of +10.3 percent and +10.7 percent, respectively (previous year's development: +6.4 percent and +8.2 percent).
The decline in purchase prices for residential properties has further leveled off
The decline in asking prices for condominiums continued in the first half of 2024 in all Big 8 cities. The average asking prices for new and existing apartments were approximately -3.6 percent lower than the previous year.
This price decline has significantly weakened compared to the previous year (-7.3 percent) and the previous half-year (-7.4 percent). Frankfurt (Main) experienced the largest decrease compared to the previous year with -6.5 percent, but also showed a decreasing trend (previous year's development: -8.1 percent). Hamburg, on the other hand, had the smallest decline in the housing market, with a change in median asking prices of only -0.6 percent in the first half of the year compared to the previous year.
However, it should be noted that the current supply data only provide limited insight into the actual price development of completed sales. This is evident from the increased number of listings combined with a decrease in actual sales transactions in many major cities.
Only in the segment of newly constructed apartments, where the seller's negotiating power regarding the purchase price is lower due to higher construction/development costs, and therefore a lower demand is reflected more in the sales velocity, the difference between actual sales prices and asking prices remains significantly smaller.
In the first half of the year, the purchase prices for newly constructed apartments in the average Big 8 cities only slightly decreased by around -1.3 percent compared to the previous year. A year ago, the average development was slightly positive at +2.0 percent. This also indicates that prices for newly constructed condominiums have been relatively stable over the past two years, mostly moving sideways.
However, the price development in the new construction segment was less hom*ogenous in the Big 8 cities compared to the development of existing property prices. Düsseldorf and Leipzig experienced significantly positive price development for newly constructed apartments (+4.1 percent and +8.7 percent, even when considering quality-adjusted data*), while Hamburg and Munich saw significant price declines of -5.0 percent and -5.2 percent, respectively. Munich remains the most expensive city among the Big 8 with an average price of €11,000 per square meter in the first half of the year. It is followed by Stuttgart with €8,530 per square meter, and Düsseldorf, Berlin, and Frankfurt (Main) with similar median prices in the new construction segment of €7,910 per square meter, €7,920 per square meter, and €7,980 per square meter, respectively.
*When considering quality-adjusted data, the changes in the datasets regarding the condition and amenities of the properties as well as micro-locations are estimated using a hedonic approach. All trends are tested for validity, even if not explicitly mentioned in the text.
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Authors
Sandra Baumgarten, Senior Research Analyst
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