Apartment buildings – Your crisis-proof capital investment

The residential investment market is an excellent choice if you are looking for good investment opportunities in Germany. Apartment buildings in large and medium-sized towns in particular make fantastic capital investment objects thanks to their potential for appreciation.

Good framework conditions mean that capital investment in apartment buildings is profitable and reliable. Click here for all key information on this attractive market. 

Interactive diagrams and downloadable local market reports

Use our interactive diagrams to compare current prices in different German towns and cities. Our database is continuously updated. You can also download PDF files with market report summaries for every town and city. They are updated twice a year. Visit the page for the respective city to access the PDFs. Click the following button to request the complete market report for Germany.

​Update 1st half-year 2024 on the residential and commercial property market

An overview of the market development of residential and commercial properties in Germany (with a focus on the top 7 cities) in the first half of 2024 can be found by clicking on the button below. The update is also available for download as a PDF.

The asset class residential investment, which includes multi-family houses, residential and commercial buildings as well as residential portfolios, is convincing despite global economic and geopolitical changes with its high crisis resistance. The current market report for Germany reveals the benefits of the asset class. Due to high inflation and successive increase of the interest rate over the course of 2022*, the transactions of residential and commercial buildings in Germany fell by 15.5 % year-on-year. The transaction volume in he record year 2021 was not achieved in the following year and declined by around a quarter to nearly €37 billion.

The year 2023 was still characterized by key interest rate hikes until September and financing conditions deteriorated. This has led to a reluctance of many institutional investors and a significantly lower number of large-volume sales. Engel & Völkers Research therefore expects a further decline in the number of transactions in 2023 and anticipates a transaction volume of around €26.5 billion, down 28 % on the previous year. In addition to a higher interest rate and lower market activity, this is also the result of the associated fall in prices. The average quoted price for a residential investment fell by 6.2% year-on-year to €1,948 per square metre in the second half of 2023.

The combination of lower prices, a smaller number of competitors on the purchasing side and the first slight interest rate cuts are currently offering attractive opportunities for market entry, particularly for private investors with a strong capital base. Many economists are forecasting the first cuts in the key interest rate for the second half of the current year. The improved financing conditions will probably lead to a return of institutional investors. Accordingly, an increase in market activity and a moderate rise in transaction volumes are expected for the current year.

* Why does the 2024 market report include transaction figures for 2022? A total of some 500 committees of valuation experts record all the real estate transactions carried out in Germany. Due to the many working groups and a variety of recording methods, conclusive annual transaction figures and exact volumes for the entire Federal Republic of Germany can only be calculated in autumn of the following year at the earliest. The most current data for actual sales thus dates from 2022.

In 2022, there were again major regional differences in where real estate investors invested money. Compared to the record year 2021, declining transaction figures were recorded in many places in 2022. However, the percentage changes compared to the previous year differed significantly depending on the region.

North Rhine-Westphalia, Bavaria and Berlin lead the ranking of federal states in 2022 (see chart below) and recorded the highest transaction volumes. The most transactions took place in North Rhine-Westphalia. This federal state alone carried out 27,3 % of nationwide transactions 

In the years prior to 2022, the price trend was continually positive and peaked in the second quarter of 2022. Due to critical global economic and political events, price adjustments were observed in most regions of Germany in the second half of 2022 and the following year. However, prices are expected to gradually bottom out in large parts of Germany in spring of this year. Larger price drops are only to be expected for properties in poor energy condition. 

Accordingly, risk-averse investors in particular will continue to focus on housing as an asset class and include it in their investment portfolios. The impact of economic setbacks on the housing market will remain moderate and the good demographic outlook means lower risks for the investment.

The demand for apartments remains high in Germany. At the end of September 2023, the population reached a new high of 84.6 million people. This is accompanied by a significant migration surplus in recent years. This will further increase the demand for living space and cause rents to rise, partly because the housing shortage is becoming more acute.

In the second half of 2023, the average quoted rent in existing apartments nationwide was €9.55 per square metre. Compared to the previous year, this is an increase of 5.2 %. In new buildings, the average quoted rent even rose by 7.0 % to €13.82 per square metre in the same period. In combination with the recent fall in purchase prices, investors can expect significantly shorter amortization periods for their investments in many cases.

Due to the refugee movements from Ukraine, net immigration increased significantly in 2022 and led to a migration surplus. This resulted in an increase in excess demand for rental apartments, which is also reflected in the vacancy rate. The market-active vacancy rate fell across Germany in 2022 compared to the previous year and amounted to 2.5 % nationwide. That is 554,000 vacant apartments and around 53,000 less apartments compared to the previous year. The excess demand is also being boosted by a fall in the average household size.

New construction cannot compensate for the high demand on the rental apartment market. High construction prices and supply shortages led to many construction stops and cancellations in 2022. The federal government's target of 400,000 new apartments per year was missed by a wide margin. Around 295,300 apartments were completed in 2022. And construction completions may be even lower in the coming years. But for investors, this development means high potential for rent increases and fewer rent losses.

This means that interest in residential and commercial properties remains at a high level despite all the uncertainties, as low vacancy rates guarantee good rentability and therefore stable cash flows.

The focus of investments in the market for residential and commercial properties is on portfolio properties, mainly because new residential construction has fallen dramatically. Increased material prices and supply chain issues have led to high construction costs, especially in 2022. In addition, financing conditions have become more difficult and land purchases by project developers have often been expensive. These factors have led to a sharp increase in construction delays and even project freezes. At the same time, ESG (EU requirements for environmental, social and governance) is increasingly coming into focus. However, the demand for properties in an energy-efficient condition is not adequately covered by new construction.

The condition of a property has a crucial role in the purchase and sale decision. Many portfolio properties currently traded on the market are in need of modernization. In the future, modernization is unavoidable in view of increasing ESG requirements and is associated with high costs. Together with high financing requirements, this causes huge challenges for many property owners and is often a reason to sell. The energy efficiency of the property has a strong influence on the price. In 2023, the average quoted price for apartment buildings with energy efficiency category A (3,692 EUR/m²) was more than twice as high as for properties with the worst energy efficiency category H (1,713 EUR/m²). Properties in good condition are likely to have great potential to increase in value in the medium to long term.

The negative price trend on the residential investment market in many places over the past 1.5 years, coupled with rising rents, has resulted in an increase in yields. Thus the years of yield compression have come to an end since mid-2022. Even in the top 7 cities, the gross initial yield for core properties in good locations was 4.2 % at the end of 2023, which is above the inflation rate. However, it is questionable whether yields will continue to rise. Interest rate-reduced price adjustments are likely to come to an end soon. It is therefore currently a good time to invest and rental income and value growth can be expected to rise in the long term. Residential investments therefore remain a fundamental component of the allocation.