After two years of slump in the transaction market for rental apartments, investors are smelling the morning air again. This comeback is made possible by more reliability in purchase prices, falling interest rates and rising rents.
There are increasing signs of a comeback in the residential investment market. This is already suggested by the market reports of the major brokerage houses for the first half of 2024. For example, Colliers recorded a transaction volume of 2.6 billion euros in the second quarter, almost 80 percent higher than in the first three months.
According to the Colliers market report “Residential Investment 2024/25”, investor sentiment has not only improved overall by the summer of 2024. In addition, the residential real estate sector in particular is trading in positive territory by a clear margin, ahead of the logistics and hotel real estate segments. In a survey of insurance companies conducted by EY, 69 percent of respondents also said that housing was the most popular type of use for them.
Return to rising purchase prices on the horizon
The revival of the residential investment market has a lot to do with the regained interest rate security and purchase price stability. Purchase prices for residential real estate had peaked in 2022 after a steep rise and collapsed in the wake of the interest rate turnaround. The lower prices have recently led to a renewed increase in investor demand, which in turn makes a trend reversal in purchase prices likely. In the second quarter of 2024, for example, the price of ehrfamilien houses had already risen by 4.4 percent compared to the first quarter, compared to around 10.5 percent in the previous quarter. This is the result of the German Real Estate Index (GREIX), which is determined on the basis of transaction data from the purchase price collections of the appraisal committees.
An average of eight percent rent increase within one year
What makes residential real estate particularly attractive for investors is the rising rents. In the first half of 2024, rents for newly built apartments increased by an average of seven percent in Germany’s top cities within twelve months, according to JLL. In the 50 largest cities nationwide, they rose by eight percent.
This means that the pace has accelerated significantly: In the first half of 2023, according to Colliers, average rents in the top 50 cities for first-time occupancy had risen by only four percent within six months. The most striking example of rent increases comes from the capital: According to the results of the IBB housing market report, there was a 21 percent increase in asking rents in Berlin last year. According to Colliers, rents are driven by continued population growth and the increase in households, especially in large cities. The seven largest German cities have recorded a total of more than three million arrivals in the past five years.
Housing shortage continues to fuel rent growth
The shortage of rental apartments will continue to worsen for the foreseeable future. The Federal Institute for Research on Building, Urban Affairs and Spatial Development predicts a significant increase in the number of inhabitants in Germany to 85.5 million by 2045 – a growth of around 800,000 people. This year alone, according to the Central Real Estate Committee (ZIA), there is a shortage of 600,000 apartments throughout Germany. In the first half of 2024, however, only 106,700 new apartments were approved, according to figures from the Federal Statistical Office. This is 21.1 percent less than in the first six months of 2023. The ifo Institute expects construction completions in residential construction to decline to below 200,000 apartments in 2025 and 2026. Thus, rents are expected to continue to rise in the future.
Nationwide, the number of advertised rental apartments has been steadily declining in recent years. Since the first quarter of 2022, almost a fifth (18 percent) fewer rental apartments have been advertised. Compared to the previous year, the number of rental apartments was recently 6.8 percent lower. The reasons for the decline in advertisements are manifold: apartments that become vacant are apparently only sold under the table, are no longer rented out at all or presumably migrate to the furnished sector
Sales increase of 14 percent forecast for apartment buildings
For 2024 as a whole, the consulting and research institute GEWOS expects transaction activity in apartment buildings to continue to increase, as does the number of major transactions and package sales. The purchase of apartment buildings is expected to increase by 8.1 percent in 2024 compared to the previous year, and cash turnover by 14.4 percent, according to the forecast. GEWOS justifies this by saying that in view of the development of purchase prices, it is no longer worthwhile to postpone transactions any further.
About INDUSTRIA
INDUSTRIA opens up investments in apartments in economically strong locations throughout Germany for private and institutional investors and offers a comprehensive package of services in asset and property management. As of 30.06.2024, the company, based in Frankfurt am Main, manages around 20,500 residential units with a volume of more than 4.9 billion euros, drawing on experience from around 70 years of activity in the market. INDUSTRIA’s acquisition strategy is focused on both new construction and existing investments. INDUSTRIA is part of the Becken Group, an owner-managed Hamburg-based real estate and investment company.
