Catella Research study reveals continued high investor demand in German residential markets

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A new study by Catella Research has revelled that investor demand in German residential markets remains high with flat rents continuing to increase. 

In its annual residential map, Catella Research has examined rents and yields in 81 locations in Germany and identified trend movements.

The average flat rents of the 81 analysed locations have increased in the annual comparison. In medium locations the average rent is currently EUR9.17 per sq m and in very good locations EUR12.16 per sq m.

The different growth rates between the residential locations are striking. Berlin's rent cap (which has been lifted again) is having a price-reducing effect on existing rents, but even without Berlin, rents in the very good locations have risen much more strongly.

Compared to the previous year, this means a price increase of approximately 2.2 per cent in medium locations and approximately 5.3 per cent in prime locations.

In the top seven residential markets, the average rent in very good locations has risen by 3.63 per cent to currently EUR18.56/sq m, while rents in medium locations have fallen by 0.02 per cent (excluding Berlin, there has been growth of 1.27 per cent).

The strongest rent increase of approximately 6.4 per cent thus occurred in the category "very good location", outside the top seven markets.
The most expensive location in absolute terms is still Munich, with an average of EUR26.81 per sq m in very good locations and EUR17.15 per sq m in medium locations.

It is comparatively cheap to live in the city of Herne, with an average of EUR6.29 per sq m in medium locations and EUR7.98 per sq m in very good locations.

Yields continue to decline in almost all 81 locations surveyed. On average, the current gross initial yield is 3.97 per cent and has fallen by 40 basis points compared to the previous year. Even the Corona pandemic could not stop the compression dynamic.

The yield in the top seven housing markets fell by a full 27 basis points this year to 2.63 per cent. The decline was even higher in the B locations or the top 25 markets in our overall ranking. The average yield here is 3.53 per cent, which corresponds to a decline of 34 basis points.  

Munich is the clear front-runner in Germany's lowest yield, with a gross yield of 2.0 per cent, due to the very high demand and strong investment momentum in recent years. The most attractive yield can currently be earned in Cottbus at 5.9 per cent.

A look at the Catella risk-return profile shows that investor demand for the "safe asset class" of residential remains high, so that the locations with attractive yields continue to dwindle. Nevertheless, there are still diversification opportunities at portfolio level and the spread against safe government bonds is still high. This level of yields and prices is expected to continue for the next few quarters.

Professor Dr Thomas Beyerle, Head of Group Research, Catella, says: "The enormous growth rates of the past are easing somewhat, but we do not see a structural break in the trend. Rising completions (+13.8 per cent from January to April compared to the previous year) and a turnaround in interest rates on the horizon should provide relief on the market in the medium term, even if there is still excess demand."