Summary of the 2021/2022 report by Colliers analyzing the German residential real estate market
The Residential Property Report Colliers 2021/2022 analyses the German real estate market in comparison to other European markets and makes forecasts about its future development.
As the report highlights, despite a weak economic downturn in 2020 due to the corona pandemic, Germany generates around a quarter of total European economic output. Germany is also one of the most affluent countries with a disposable income of EUR 50,700 per household, which represents an increase in purchasing power from 2019 to 2020 despite the shrinking economy. Due to its purchasing power and economic size, Germany is thus one of the most important and largest real estate markets in Europe with an annual transaction volume of EUR 59 billion in 2020.
Driven by cheap capital, Germany thus recorded the strongest increase in real estate prices since 2010.
However, construction costs also rose over the same period, recording the second-highest increase since 2010 after the UK.
According to colliers' report, if one takes a closer look at developments in the German real estate market, demographic trends in particular are trend-setting for future development. On the one hand, slight population growth is to be expected in the coming years, which is due in particular to positive immigration.
However, the demand for housing is primarily fueled by the growth of private households, which in turn is due to the increase in smaller households. By 2035, a growth of 2.5% in private households throughout Germany and 6.7% in German cities is to be expected. This shows another trend that characterizes the German real estate market: urbanization. However, the trend in household growth is not exclusively due to growth in the metropolises. It is predicted that the growth in households in the big seven German cities: Berlin, Hamburg, Munich, Frankfurt, Stuttgart, Cologne and Düsseldorf, which are usually referred to as the TOP 7, will be the strongest, but strong growth in medium-sized cities will also show similarly high growth.
In terms of transaction volumes, Berlin is the largest German market with an annual turnover of EUR 5.1 billion, ahead of Munich with EUR 1.8 billion and Hamburg with EUR 1.5 billion per year. After the volumes in the big cities had risen sharply in recent years, however, the growth has now shifted to the medium-sized cities. While the sales volume in some of the TOP 7 cities even declined between 2019 and 2020, transaction volumes grew significantly, especially in medium-sized cities, e.g. in Würzburg by 209%, in Ingolstadt by 89% or in Nuremberg by 70%.
Overall, the German real estate market is thus proving to be a growing market, with growth increasingly shifting to medium-sized cities. This generates a myriad of opportunities to developers and investors that are active in these regions to tap the potential of an ever growing German market.