+ Property prices in Germany

A new architectural era for Berlin's Potsdamer Platz

With the largest and the most stable economy in Europe, Germany is an attractive destination for investment capital from around the globe. One way to maintain and increase capital is to invest in real estate.

The German property market is heterogeneous: the situation in western Germany is significantly different from that in eastern Germany, while Berlin, the capital of the country, is characterised by its own specific features.

Sources: citypopulation.de, arbeitsagentur.de, gfk.com, wohnungsboerse.net
Population,
millions
Unemployment
rate,
 %
Purchasing power
of the population,
EUR, thousands,
per annum
Average
property prices,
EUR/m²
Germany 82.18 5.6 22.2 4,491
Berlin 03.52 8.9 20.4 3,795
Western Germany
Munich 01.45 2.6 30.1 7,389
Frankfurt 00.73 5.8 25.5 5,047
Düsseldorf 00.61 7.3 26.4 4,426
Eastern Germany
Leipzig 00.56 7.7 19.3 2,616
Dresden 00.54 6.5 20.2 2,548
Potsdam 00.17 5.9 20.7 3,652

German property investments are reliable and show promise thanks to the following key factors:

  • Stable economy. in 2016, Germany´s GDP increased by 1.9% and exceeded €3.1 trillion (the fourth largest GDP in the world).
  • Low unemployment rate. The unemployment rate has declined by 0.4% year-on-year, hitting 5.6% by May 2017 - a record low since 1990.
  • Population growth. In 2016, the country´s population was around 82 million - 2.4% higher than during the last decline in 2011. The population is constantly growing due to high levels of immigration.
  • German nationals’ incomes are rising. In Q4 of 2016, the average German salary reached a record high of €3,745 per month.
Anna Boyarchukova
Anna Boyarchukova Tranio Sales Manager for Germany

Among the main incentives for property demand in Germany are the cheap mortgages. The average interest rate over the last two decades is just 4.7%, whilst in May 2016 it was down to 1.5%. Loan repayments have be-come less burdensome, leading to a considerable increase in property demand and, subsequently, prices.

Berlin: a market with a great potential

The German capital´s economy is booming. In 2016, Berlin's GDP grew by 4.6%, exceeding the national average by 1.3 percentage points. Key industries are IT, healthcare, electrical goods manufacturing and tourism. Berlin houses the largest number of start-ups in Europe: a new company opens every 20 hours there.

— What is facilitating the growth in Berlin’s population?
— The main reason is due to young professionals who come to the city in order to find jobs. Every year, the number of inhabitants increases by 40,000, a number which totals over 1% of the capital's population.

The Berlin property market is one of the most dynamic in the world. The economic growth and rising population in the city are fuelling demand. As a result, real estate prices are constantly increasing:

  • between 2011 and 2016, the average residential property price in Berlin more than doubled to €3,795 per m².
  • the average residential property rental rate grew by 70% over the same period to reach €10.99 per m² per month.

Mitte, Friedrichshain-Kreuzberg, Charlottenburg-Wilmersdorf and Pankow are the most expensive locations in Berlin. These four boroughs are the only parts of Berlin where the median purchase and rental prices exceed the city average.

The busy shopping street Friedrichstraße runs through the centre of Berlin: through the bor-oughs of Mitte and Friedrichshain-Kreuzberg
Photo: Dl.mooz / Wikimedia
The busy shopping street Friedrichstraße runs through the centre of Berlin: through the boroughs of Mitte and Friedrichshain-Kreuzberg

Mitte is the most expensive property market in Berlin, with the median price for flats running at €4,570 per m² (for comparison, in Friedrichshain-Kreuzberg, the second most expensive borough, it is €4,040 per m²). The median rental price in Mitte is €12.95 per m², which is 28% above the Berlin average. Residential properties are cheaper on the outskirts: for instance, in Marzahn-Hellersdorf, a borough in eastern Berlin, flats with prices starting from €1,400 per m² are on offer, whilst rental rates in the area start from €5.6 per m².

Yulia Morozova
Julia Morozova Tranio Sales Manager for Germany

When buying a flat in Berlin, you shouldn't expect to obtain a quick profit from rental. The local residential real estate is promising primarily in terms of its future capitalisation. Property in the capital generates a reasonable rental income of 3–4% and gains in value annually.

Non-residential property is also in high demand in Berlin. In 2016, €4.9 billion was invested into the commercial segment. The demand for such property continues to grow, especially in the central districts. This price growth has led to a decline in the yield rates to 3–6% per annum.

Western Germany: a liquid property market

Western Germany is a commercial and industrial region with well-developed infrastructure, low unemployment and a population with increased purchasing power. The real estate market of western Ger-many is characterised by:

  • high demand for property rental and purchase;
  • fewer properties on offer when compared to eastern Germany;
  • high rental rates: €12–15 per m² per month for residential properties and €35 per m² for commercial properties;
  • high property prices: starting from €4,000 per m² on average;
  • low yields: 3–6%.

Munich, Stuttgart, Frankfurt am Main, Düsseldorf and Hamburg are the largest high-liquid property centres in the western region.

Residential property prices in western German cities

Sources: wohnungsboerse.net, de.statista.com, immobilienscout24.de
Purchase Rent
Average price,
EUR per m²
Price increase
since 2012, %
Average price,
EUR per m²
Price increase
since 2012, %
Munich 7,389 +60 19.62 +56
Stuttgart 5,162 +68 15.76 +62
Frankfurt am Main 5,047 +66 14.42 +29
Düsseldorf 4,426 +62 11.41 +27
Hamburg 4,377 +34 12.45 +25

Experienced investors look at not only metropolitan cities whose overheated markets bring about high property prices, but also cities with 50,000 to 300,000 inhabitants, well-developed infrastructure and low unemployment rates. Such locations, where the property prices retain a potential for growth, include Ludwigshafen, Regensburg, Ingolstadt, Oldenburg and Heilbronn. At the same time, in smaller communities with 20,000–50,000 residents, a yield equal to that in larger cities can be obtained with properties that are 10–15% cheaper.

Франкфурт-на-Майне
Photo: Thomas Wolf / Wikimedia
Frankfurt am Main: the financial capital of Germany

Western Germany’s successful economy also fuels demand for non-residential properties: offices, hotels; high-street retail buildings; warehousing facilities; spaces for small and medium enterprises. Commercial real estate in big cities is a safe option due to its liquidity being high on account of its price constantly increasing. Investors choosing such properties count not on the current income they offer, but on future capitalisation growth.

— Which commercial properties in western Germany are the most reliable?
— Those in the right locations, with long-term rental contracts and in good condition. We consider retirement homes and medical centres to be the most promising commercial property types over the next 15–20 years.

Western Germany, especially the southern parts, also has a well-developed domestic tourism industry. The region's most popular resorts are the spa town of Baden-Baden, the ski resort of Garmisch-Partenkirchen, in addition to Starnberg and Titisee-Neustadt. The rental demand in popular tourist areas is high: for instance, in 2016, Baden-Baden attracted over one million tourists, whilst the town’s hotels have no more than 5,400 bed spaces.

Eastern Germany: dynamic market development

Eastern Germany attracts investors with the rapid growth of its economy and its high potential for development. The population is growing, and so is purchasing power in the region. Meanwhile, the unemployment rate is falling: in Dresden and Weimar, for example, it declined by 0.9% between May 2016 and May 2017.

In general, the real estate market of Eastern Germany is characterised by:

  • properties being 25–30% cheaper than in western Germany;
  • relatively high yields: 4–8%;
  • a larger number of properties on offer when compared to the western regions;
  • property price and rental rate growth: between 2012 and 2017, in large cities, prices grew by 38% on average, and rental rates increased by 21%.

The most promising real estate markets in eastern Germany are located in the big cities: Leipzig, Dresden, and Potsdam whose well-developed infrastructures and moderate living costs attract young people. In 2017, the average rental rate in Leipzig reached €7.08 per m², which is almost 26% higher than in 2015 but still significantly lower in comparison to the large cities of western Germany.

Residential property prices in the cities of eastern Germany

Sources: wohnungsboerse.net, tlg.eu, engelvoelkers.com, immobilienscout24.de
Purchase Rent
Average price,
EUR per m²
Price increase
since 2012, %
Average price,
EUR per m²
Price increase
since 2012, %
Leipzig 2,616 +41 7.08 +39
Dresden 2,548 +24 8.49 +35
Halle 1,920 +75 5.88 +11
Weimar 1,831 +31 7.50 +14
Chemnitz 1,402 +22 5.08 +6

Thanks to the relatively low prices, the yields in eastern Germany are still higher than in the west of the country: about 4–6% for residential properties and 6–8% for the commercial ones.

Sofia Bulanova
Sofia Bulanova Tranio Sales Manager for Germany

The growth of large and medium-sized cities in eastern Germany makes for promising markets for investors. The relatively low prices for local real estate will ensure higher rental yields, whilst the continuing economic growth will allow investors to resell property at a profit in 7-8 years.

Such small university cities as Halle and Chemnitz favour student property investment, with there being many international students wishing to obtain a high-quality German education at a reasonable price.

 
 
Free advice on real estate in Germany
Ekaterina Sajitharan
Real Estate Expert Tranio in Germany
+44 20 3608 1267
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