Profits to rise with occupancy
for Germany's rental accommodation
Commercial property investments soar in “Big Seven” cities
Investments into commercial property for sale in Germany have soared in 2015, beating last year’s figures by 50% already. By October 2015, €38.1 billion had already been invested compared to €39.8 billion for the whole of 2014 according to CBRE. Property in the country is particularly popular with foreign buyers who made up 53% of all transactions between January and September while portfolio investments represented 37% of the total investment volume.
Check out this article for news on the Germany's leading commercial property segments in 2015.
In 2015 the most popular residential property segments of the commercial market in Germany are:
The most popular destinations are Germany’s "Big Seven": Berlin, Hamburg, Düsseldorf, Cologne, Munich, Frankfurt am Main and Stuttgart. Together, they generate more than half of all transactions on the market. These large cities are recognised as established markets where property has higher liquidity and demand is strong.
Germany is Europe’s second most popular tourist destination after Spain with overnight stays reaching
Locations: hotels in Germany’s “Big Seven" cities are the most in demand and have the lowest risk for investors. Berlin, Munich and Frankfurt am Mein are the most popular destinations, with hotels accommodating the lion’s share of foreign tourists in 2014 according to the Federal Statistical Office of Germany (Bundesamt für Statistik). Premises located near car parks, restaurants, shops, entertainment and attractions, landmarks or offices are in great demand regardless of the region.
Vacancy rates: average German hotel occupancy is 70%, a figure that should remain stable for Frankfurt and Berlin throughout 2016 according to PwC, a financial group.
Lease contracts: Management companies offer two types of contracts, which pay either a revenue share or a fixed income (linked to inflation index).
Commercial apartment buildings
€13.3 million was invested into commercial apartment buildings in Germany in 2014 according to CBRE. 80% of investors are Germans, but nationals from neighbouring Austria and Switzerland are also active on the market.
Locations: Berlin is the most popular city with the investors, followed by the large cities of Bavaria and North
Budget: in popular locations, property can cost twenty times the annual rental income. In other destinations, prices exceed the annual income by eleven or twelve times. The average residential unit price in Q3 2015 was €87,700 while apartment building prices start from about
Price dynamics: prices in Germany are rising, particularly in the “Big Seven”. Prices in Frankfurt and Stuttgart gained 12.6% between H1 2014 and H2 2015 and Munich has the most expensive property €5,770 on average.
Rent dynamics: rental rates in Stuttgart gained 8.5%
Yields: yields on residential property yield in Germany range from 4% to 7% depending on the location and condition of the property. “Big Seven” properties generate
Vacancy rates: the “Big Seven” are in demand and with 2% vacancy on average, tenants have little choice in the matter. A massive 99.6% of flats are occupied in Munich and 99.3% in both Hamburg and Frankfurt.
Lease contracts: rental rates can’t rise more than 20% in three years according to German law and can only be increased if they have remained unchanged for 15 months in a row. Investors who want to raise the rent must give tenants three months to agree or terminate the lease agreement. Nearly all the rental contracts in Germany are made for an indefinite term and the right to termination is set out in the law for both parties.
EUR per sq m
Germany is famous for its
Locations: top German student cities include Munich, Hamburg, Cologne, Frankfurt and Stuttgart according to CBRE.
Rental demand: 13% of students live on campus and 63% rent flats or apartments in private student complexes according to Savills. Most students choose accommodation near the universities. Studios of up to 30 sq m are the most popular.
Yields: average net yields on student properties in Germany is 5% according to Savills.
Rental rates: 330,000 students in Germany’s biggest university cities spend between €350 and €450 on rent per month. The most expensive
Vacancy rates: Vacancy rates in the “Big Seven” don’t exceed 2% and Munich has the highest occupancy (99.5%).
Lease contracts last one year in general and it is common for students to share accommodation and split the rent.
|Average rental rate,
According to the UN forecasts, by 2050 over 40% of the population will be over 60 years old. As demand for retirement homes grows, market capacity will need to expand in order to accommodate tens of thousands more people.
Locations: large provincial and midsized university towns as well as the areas nearby are popular. An investment will be more successful if there is
Rental demand: 100+ suite senior homes with the possibility of expanding capacity and changing the layout are popular. In terms of units, single rooms usually measure 18 sq m and doubles 25 sq m at least. The property should not be more than 10 years old but ideally is new or completely renovated so as to minimise costs linked to changing construction and care standards.
Budget: retirement homes require investments of at least
Yields: average yields are 7.5%.
Lease contracts are usually
What to expect in 2016
Germany’s GDP is expected to grow until 2020 as unemployment rates continue to decrease and household incomes rise. These parameters are good indicators of positive market conditions for investing into commercial property. Despite falling yields in major commercial property segments (i.e., office space), demand for rental property will continue to grow alongside demographic pressure. With 800,000 migrants set to pass Germany’s border in 2015 and occupancy rates above 99% in the leading cities, higher household income and demand for rental property should positively influence the residential
Yulia Kozhevnikova, Tranio
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