Current developments of the German residential market

What is the situation regarding the development of the housing industry in Germany?

The impact of the Corona pandemic has had a strong influence on the German residential real estate market. However, in contrast to numerous other business models and real estate segments, the impact on the residential real estate market is largely positive. For example, the German residential real estate segment saw a significant increase in capital inflows in 2020. On the one hand, the inflows can be attributed to the loose monetary policy of the European Central Bank (ECB), which was expanded during the pandemic. On the other hand, the German residential segment has seen an increase in new professional and institutional players who have shifted their investment capital from the more affected commercial real estate to the still stable residential real estate market in the wake of the Corona crisis. The attractiveness of residential real estate is mainly due to the fact that residential real estate is a comparatively crisis-proof asset class that generates sustainable, secure cash flows. In addition, the residential real estate market is characterized by its high liquidity, which keeps investors' risks low.

According to the Residential Report of BNP Paribas, in 2020, the German real estate market recorded its second-highest transaction volume in history at €20.8 billion (30 residential units and above), up 7% from the previous year. This positive trend continued in the first half of 2021. Indicative of the attractiveness of the German residential real estate market is in particular the share of foreign investors. In 2020, foreign investors accounted for around 50% of the total transaction volume. The German residential real estate market has an international appeal due to its high liquidity and security.

Low vacancy rates of 2.8% in A-cities continue to increase the pressure on local rental markets. Since 2014, rents in both A and B cities have risen by more than 40%, thus providing investors with increasing income. This trend is also driven by the continued growth of private households in Germany. Between 2014 and 2020, the number of private households rose by 4.4% to 41.3 million. In arithmetical terms, there is therefore still a shortfall of around 250,000 units in Germany to meet the demand for housing. Household growth is primarily attributable to the rise in single-person households, which represent around 42% of all households in 2021 and will continue to increase in the future - to around 45% in 2040.

From a macroeconomic and socioeconomic perspective, the investment climate in the German residential real estate market thus remains favorable, based on sustained high demand for housing, rising purchase prices and rents, and a high inflow of capital.