KENSINGTON International / News / Trends affecting the German real estate market in autumn 2022

Trends affecting the German real estate market in autumn 2022

High inflation, energy crisis and rising interest rates: the economic situation in autumn 2022 is tense. In winter, Germany even faces the threat of recession. This is now leading to the first upheavals on the German residential real estate market. After a long boom that was characterised by rising property prices and extremely low interest rates lasting over ten years, more and more indicators are pointing to a reversal of the trend. This is especially true for the new private construction sector. In addition, there are shifts in demand from the purchase market to rental properties. However, there have been no major price drops so far. An overview…

Little movement in purchase prices

Overall, residential property prices have continued to rise in the first nine months of 2022, although the price increase is now slowing compared to 2021. The Federal Statistical Office calculated a price increase of 10.2 per cent in the second quarter of 2022 compared to the same quarter of the previous year. In 2021, the annual price increase rates for residential property were still over 12 percent. Currently, detached and semi-detached houses in sparsely populated districts are recording the highest price increases (+ 13.6 %) within the last 12 months. In the seven largest cities (Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart, Düsseldorf) detached and semi-detached houses rose by 12.2 per cent and condominiums by 10.6 per cent. Single-family homes cost just under 400,000 euros on average in Germany in the 1st half of 2022. The latest figures from Q3 2022 continue to show price stability at a high level in Germany. After there were some downward adjustments in asking prices in Q2 2022, values have for the most part risen slightly again from July.

Munich remains by far the most expensive metropolis. According to the portal ImmoScout24, the average asking price for newly built flats in the Bavarian capital in Q3 2022 is €9,837 per square metre. This is followed by Frankfurt am Main (€6,558/m2), Berlin (€6,442/m2), Hamburg (€6,388/m2) and Cologne (€5,939/m2).

A slight bend in some price curves can be observed in Munich, where condominiums with good residential value are now trading at an average of €9,450 per square metre. In spring, the average was still €9,500 according to a study by the Süddeutsche Zeitung. However, prices in the other regions of Bavaria are still rising slightly and have now reached an average of 4,580 euros.

In the major German cities, only a few sectors are trending slightly downwards when comparing asking prices from the 3rd to the 2nd quarter of 2022.

These are existing condominiums and houses in Frankfurt a. M. (- 0.2 % and – 0.1 % respectively) and in Stuttgart (- 1.4 % and – 1.6 % respectively) as well as newly built houses in Berlin (- 1.5 %). In contrast, Düsseldorf and Cologne generally show a slight increase (+ 0.5 % to +2.7 %). The most significant increases in value are currently in Hamburg (+1.7% to +5.3%). Across Germany, there are moderate increases in the following average figures: Condominium/existing: + 0.9 % = 2,835 €/m2; condominium/new construction: + 1.0 % = 4,170 €/m2; house purchase/existing: + 0.5 % = 3,055 €/m2; house purchase/new construction: + 1.9 % = 3,703 €/m2.

Existing properties are currently more in demand than new buildings. In view of the high energy costs, properties that have been renovated for energy efficiency and have a modern, efficient heating system are more in demand.

Dramatic price drops are not yet to be expected in the short term, but demand is already tending downwards. Many properties are taking longer to sell. The general price trend is also playing a role in the drop in demand. Particularly in the high-priced districts of the big cities, prices for new flats have risen to over 10,000 euros per square metre in many cases over the past ten years. The number of people who can still afford such prices is falling.

Real estate market in Germany for KENSINGTON 2022

High construction costs

There is no doubt that the construction industry is running into ever more difficult waters. Interest rates have been rising rapidly since the beginning of the year. As a result, interest in financing construction is waning. It is no longer possible to get a real estate loan for less than 4 percent – no matter how long the fixed interest rate is. And a change in the trend is currently unlikely. A shortage of construction workers, rising material costs (especially wood and steel) and persistent supply chain problems are driving costs. As a result, construction projects are difficult to calculate, resulting in some plans being abandoned or put on hold for the time being. The number of building permits fell by 9.4 percent in August compared to the same month last year – to 28,180 according to the Federal Statistical Office. The number of building permits for single-family houses fell sharply in the first eight months, dropping by 15.8 percent to 55,260. Here, however, the expiry of the “Baukindergeld” (children’s building allowance) also had an effect. On the other hand, the number of flats approved in multi-family houses rose by 5.2 percent to 130,746. At the moment, it is more likely that construction in Germany will be scaled back for the first time in 2023.

Shifts in favour of the rental market

 Due to higher construction costs, however, there is a shift in demand from the buyers’ market towards the rental market. The number of people looking to rent – and thus the competition for the available rental properties – is increasing in Germany, causing rents to become more expensive. For example, asking rents for newly built flats in Berlin, Frankfurt am Main and Stuttgart rose by an average of over €15 per square metre in Q2 2022.

The prospect of higher rental yields could therefore lead to more investment in new construction if the high costs and current risks are accepted by investors. The rental market in particular definitely still has potential.


 Medium-term forecasts for the German real estate market remain difficult because they depend on political factors, the war in Ukraine and the resulting economic problems. In particular, some tenants with lower incomes and some owners of unrenovated old buildings could find it more and more difficult to keep their properties in view of the high energy prices. In addition, falling demand and less construction could be signals that an upheaval in the market is imminent. In any case, things are likely to get exciting for the German real estate market. Even the severity of the upcoming winter is a factor to be considered.

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