Ahead of EXPO REAL: An industry between crisis and a new beginning
At first glance, the headlines about the state of the real estate market and, above all, the crisis in new construction, always convey the same negative messages. Auch das The standard of political proposals for solutions has also reached a new low. However, upon closer examination, a sense of stability and optimism emerges, particularly in the residential property investment sector. Where is the real estate market heading this year?
When the key players in the property industry convene at this year’s EXPO REAL in Munich a few weeks from now, one thing is already clear: sentiment among delegates from the various asset classes could not be any more varied.
On one hand, there are companies striving to promote new construction. In this field, however, they are operating against an incessant tide of negative headlines. One of the most striking recent stories reveals that only 175,000 new dwellings are expected to be built in 2026. According to the Ifo Institute, this figure starkly contrasts with the nearly 300,000 new apartments built in 2022, and falls far short of the German government’s target of 400,000 new-build apartments. The new-build crisis is manifesting itself above all in cities, where living space is already in such short supply. There is also an acute shortage in terms of the quality of the political proposals on how to tackle the crisis. One of the latest quick-fix proposals comes from Federal Building Minister Klara Geywitz, who has suggested that house-hunters turn to vacant properties in the exurbs and rural areas – a superficial solution that fails to address the root of the issue.
Stabilisation of the residential investment market
On the flip side, as the latest figures prove, the residential investment market has been becoming consistently more stable over recent months. This trend is confirmed by data from Schick Immobilien’s Berlin Residential Investment Market Report for the second quarter of 2024, which reveals that average prices and the number of transactions are both on the rise, indicating a surge in market activity. Currently, the average cost of a mixed-use, residential and commercial building in the German capital is EUR 2,401 per square metre. This marks a notable increase from the average purchase price of EUR 2,377 per square metre for multi-family and mixed-use, residential and commercial buildings in 2023.
The transaction volume in this market has also developed positively and is now up on the same quarter of the previous year for the third consecutive quarter. The transaction volume in Q2 2024 was around 18 percent higher than the same quarter of the previous year. In total, residential and commercial properties worth EUR 863.9 million changed hands on the Berlin market – another indication of the continued stabilisation of this submarket.
Private investors particularly active
As important and dominant as the Berlin property market may be for the German market as a whole – after all, it accounts for a good 20 percent of the national market – it is also important to have broader horizons. At Schick Immobilien, we have extended our reach as real estate agents well beyond Berlin to encompass a total of 75 locations. Our focus now includes top-tier cities such as Munich, Hamburg, Frankfurt, Düsseldorf, Stuttgart, Cologne, and Leipzig. At the same time, we recognise the potential in smaller city markets and remain open to exploring opportunities in those areas as well.
This all goes to show that the current state of the residential investment market in Germany is robust, despite the prevalence of negative news. Two groups of investors in particular are currently showing a keen interest in real estate as an investment opportunity: The first group, private investors, family offices, and foundations are interpreting the current market situation as an opportunity to actively engage in expanding and enhancing their portfolios to secure stable returns over the long term. The second group is commercial investors, who are strategically focusing on value-add opportunities in response to increasingly stringent climate protection regulations.
The reasons for the success of this asset class are obvious. Firstly, this development is the result of demographic trends in the capital. Berlin’s population grew from around 3.67 million to around 3.78 million in the short period from the beginning of 2020 to the end of 2023, an increase of more than 3 percent. This had and continues to have an impact on rental prices. In fact, rental prices for existing apartments have seen a substantial increase of around 20 percent compared to the same quarter of the previous year, while new-builds have experienced an 11 percent increase. This continuous rise in asking rents for both existing and new-build apartments is expected to persist, with the existing property segment showing particularly strong growth.
Outlook: Finding solutions, together
Looking ahead to EXPO REAL in Munich, it is evident that the residential investment sector is not facing the same crisis as many other asset classes within the property industry. Optimism prevails. This highlights the importance of collaboration between all stakeholders, whether politicians or industry figures, to develop tangible solutions. These solutions must not only address immediate challenges but also contribute to a comprehensive political framework with lasting impacts beyond today and the current legislative period.