Germany Real Estate Landscape
Germany’s residential real estate market is anticipated to achieve a value of US$31.26tn by 2024. Between 2024 and 2028, this market segment is projected to experience a compound annual growth rate (CAGR) of 3.87%, culminating in a market volume of US$36.39tn by 2028.
In 2023, single-person households dominated in Germany, influenced by societal shifts and an aging population. The trend is expected to continue, with single-person households forecast to account for 43.4% of all households by 2028. Furthermore, urbanisation is projected to rise, with Munich leading the trend.
Type of Housing
As property prices have been increasing steeply in big cities for several years now, owning a home is only affordable for large numbers of people in rural areas. As such, most Germans live in rented accommodation in multi-family buildings, comprising 55% of households.
The average household in Germany consists of 2 people, with most households residing in an apartment with five rooms, and the most common dwelling size being 70-79 square meters. However, single-person households are expected to be the fastest-growing type, expanding by 1.8%. This increase in single-person households is driving a faster rise in the number of households and, consequently, the demand for housing, with these households typically opting for smaller homes.
Housing Supply & Regional Variations
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
| Housing Stock | 40,566.30 | 40,828.70 | 41,100.30 | 41,385.90 | 41,660.70 | 41,956.00 |
In 2023, Germany experienced a modest growth of 2.3% in housing completions, indicating a slight increase in the availability of new homes. However, the outlook for 2024 suggests only a marginal expansion of 0.1%, pointing to a potential slowdown in the housing construction sector. This trend is further supported by a significant 29.7% drop in housing permits in 2023, with a projected decrease of 0.8% in 2024, signaling a cooling demand for housing in the country.
Rising trend and demand for multi-family houses can be observed as the majority of new residential buildings completed have been multi-family houses recently. On the other hand, new construction of single-family and two-family houses has stagnated since 2005.
Despite the housing shortage, there has been a significant decline in the initiation of new residential construction projects, with many ongoing projects being postponed or canceled. According to the IFO Institute, around 22% of residential construction companies reported canceled orders in October 2023, the highest percentage since records began in 1991. Additionally, the number of residential building permits dropped 29% compared to last year. Consequently, it is expected that the number of completed apartments will fall to just 175,000 by 2025.
Average House Pricing
House prices in Germany fell by 4.2% in 2023, but are forecasted to rise by 0.6% in 2024. Meanwhile, the rental market remained strong in 2023, with 51% of households renting their homes, compared to a home ownership rate of 42.8%. As a result, rents rose more sharply than housing prices due to solid demand combined with very low new-build construction activity. This upward trend in rents is expected to continue in 2024.
Depending on the region, rental costs range from one quarter to one third of monthly income. Munich has the highest rents, followed by Frankfurt and Stuttgart.
Opportunities & Challenges
Opportunities
Residential real estate investments in Germany have a low long-term correlation with the bond and stock markets, providing a unique advantage for investors seeking diversification. Moreover, the ongoing demand for rental properties in Germany, driven by a robust rental market and a high percentage of households renting their homes, presents a continuous opportunity for steady income and long-term growth. As the population grows and urbanisation trends persist, the need for housing will remain strong, ensuring a consistent demand for residential properties. Investors looking to capitalise on these opportunities can benefit from the resilience and stability of the German residential real estate market.
Challenges
Due to a sharp rise in financing and construction costs, the slowdown in residential construction is expected to persist until at least 2027. This situation exacerbates shortages in housing and contributes to rising house prices, thereby impacting housing affordability.
Additionally, Germany’s population is aging more rapidly than it is growing. This is evident as the number of people in older age groups is growing and expected to surpass those in younger ones. According to Destatis Statistisches Bundesamt, 4 million more people aged 67 or over will live in Germany in 2035. With more elderly people, there is a growing demand for senior housing and healthcare facilities. Developers need to adapt to this trend by creating age-friendly environments and incorporating features like wheelchair accessibility and medical care facilities.
Conclusion
Overall, the German residential real estate market offers promising opportunities for investors but requires strategic adaptation to address affordability issues and meet the needs of an evolving demographic. By navigating these challenges effectively, stakeholders can leverage the sector’s resilience and ensure long-term growth and stability.
Sources:
[1] https://www.statista.com/outlook/fmo/real-estate/residential-real-estate/germany
[2] https://www.euromonitor.com/households-germany/report
[3] https://www.destatis.de/EN/Press/2021/02/PE21_N015_44.html
[5] https://www.destatis.de/EN/Press/2022/12/PE22_511_124.html
