Prices for multi-family apartment buildings continue to rise

New report on the German multi-family investment market:

B and C cities gain momentum

Multi-family properties hold their value despite the pandemic and the new regulations on the horizon

The good news is that the volume of transactions involving apartment buildings in Germany remains stable. At EUR 22.8 billion, the transaction volume in 2020 was around 1.1 per cent down on the previous year’s figure, compared to an 8.4 per cent rise in 2019. Shrugging off the impact of pandemic-related restrictions, 2020 scored the second-highest transaction volume on record. This is one of the key findings in the recently published second edition of SCHICK IMMOBILIEN’s residential investment market report. This comprehensive study analyses the latest developments on the multi-family investment market in Germany’s 50 largest cities and is based on data for transactions involving multi-family and mixed-use residential and commercial buildings – apartment buildings – from municipal appraisal committees.

Berlin remains by far the biggest apartment building market

According to the SCHICK IMMOBILIEN research, the number of transactions concluded in 2020 declined by about 5.9 per cent compared with the record figure for 2019. The study’s analysis of data on 12,666 transactions concludes that the largest declines were registered in Germany’s Top 7 cities, where the number of transactions dipped by 8.7 per cent to 3,074. Berlin registered by far the most apartment building transactions in 2020. The German capital successfully bucked the national trend. Despite new regulations, rent caps and the expropriation debate, the volume of transactions rose by 6.7 per cent to EUR 5.15 billion. In Munich, Hamburg, Frankfurt, Cologne and Düsseldorf, transaction volumes were down, in some cases by double digits. Only Stuttgart recorded a significant increase of 35 per cent.

Transaction volumes in Germany’s Top 7 cities in 2020 (in EUR bn)

Growth in B and C cities

Germany’s B cities enjoyed a 2020 that will live long in the memory. The number of transactions increased by 0.7 per cent, while transaction volumes rose by 18.5 per cent to EUR 6.3 billion. Above-average demand for multi-family properties was registered in Wiesbaden, Nuremberg, and Bremen. Of the 14 surveyed B cities, Bochum, Essen, and Duisburg recorded declines. These figures illustrate that the focus of multi-family investment has shifted from Germany’s Top 7 cities to its B cities.

Transaction volumes in Germany’s B cities in 2020 and year-on-year change

Prices continue to rise

Strong demand for apartment buildings caused prices to rise again in 2020. The median purchase price for an apartment building in 2020 was EUR 2,104 per square metre of living space, an increase of 10.5 per cent. Nevertheless, the range of purchase prices is particularly broad with buyers in Dessau, Gera and Gelsenkirchen paying around EUR 750.00 per square metre, while properties in Munich (EUR 7,300/sqm), Frankfurt (EUR 4,395/sqm) and Wiesbaden (EUR 4,005) sold for the highest prices.

Depending on the city, location and condition of an apartment building, achievable gross initial yields ranged from 8.6 per cent to 2.3 per cent, with price-to-rent ratios anywhere between 11.67 and 43.0. Rents for existing apartments increased by an average of 2.9 per cent across the study area. It is notable that rents in the Top 7 cities (+2.7 per cent) rose at a slower pace than rents in the B cities (+2.9 per cent). Buyers of multi-family properties can expect the greatest potential for rent increases in Lübeck and Karlsruhe, where existing rents rose by 5.9 and 5.3 per cent respectively. The peak rent for a newly built apartment averaged EUR 15.36/sqm. This represents a 2.9 per cent increase over 2019. Vacancy rates of 0.2 per cent in Munich and Frankfurt, 0.3 per cent in Freiburg and 0.4 per cent in Münster confirm the particularly strong demand for rental housing in these cities.

The research also confirms that the pandemic has had a minimal impact on the multi-family investment market, which has proven extremely robust. And the trend toward higher prices has continued in recent months with initial nationwide data for 2021 indicating that the number of transactions in the multi-family property market is again set to climb slightly this year as transaction volumes increase due to rising prices.

Prices for multi-family properties in the ten most expensive cities in 2020 (in EUR/sqm)

Would you like more information? Then drop us a line to info@schick-immobilien.de and we will send you a copy of the hot-off-the-presses “Zinshausmarktbericht Deutschland”.