The latest survey for the Aengevelt Residential Investment Index (AWI) provides a clear picture of the current state of the German rental housing market: 96 per cent of surveyed sector experts anticipate consistently high or even further increasing demand for rental apartments in the near future. Only four per cent expect a decline in interest, which, according to respondents, is likely to be confined at most to structurally weak rural areas. For the survey, conducted twice a year, DIP partner Aengevelt Immobilien polls institutional and private property owners, investors, service providers, financial institutions, appraisers and property managers across Germany.
The momentum is noticeably concentrated in the upper segment. While 64 per cent of respondents forecast rising demand for rental properties in good locations, this figure stands at 57 per cent for average locations and 50 per cent for basic locations. Basic locations are also the only market segment in which as many as twelve per cent of market participants anticipate declining demand. At the same time, there is no easing in sight on the supply side: only twelve per cent of actors expect an increase in available housing, whereas one third note a further decrease.
Persistent shortage drives rents in the quality segment
As a result of the imbalance between shrinking supply and persistent excess demand, market participants are bracing for rents to rise further. Overall, 69 per cent anticipate increasing residential rents. This expectation is especially pronounced for properties of higher residential quality: in good locations, 75 per cent expect rising net base rents, while only seven per cent expect falling figures. In average locations, 70 per cent forecast an increase in rent levels, and in basic locations, 54 per cent.
- —In good locations, 75 per cent of market participants expect rising net base rents, with only seven per cent taking the opposite view.
- —Over 90 per cent of respondents expect a further increase in ancillary housing costs.
- —For purchase prices in good locations, expectations of increases prevail at 30 per cent compared to 21 per cent forecasting declines, whereas in basic locations 39 per cent expect price falls.
Aengevelt attributes the ongoing upward pressure on net base rents to increased land, construction and financing costs, as well as the growing disparity between tight supply and strong demand. Added to this is the trajectory of total housing costs, with over 90 per cent of respondents anticipating a further rise in ancillary housing costs. The trend towards quality is also mirrored in purchase prices: while in good locations significantly more actors expect rising rather than falling prices, in basic locations 39 per cent anticipate decreasing values and only 16 per cent foresee an increase.
Regulation hampers necessary new construction activity
Dr Wulff Aengevelt, managing partner of Aengevelt Immobilien, points to a discrepancy between political discourse and actual market conditions. While the political debate focuses primarily on lower-cost housing, the majority of tenants demonstrably seek higher residential quality. Despite the considerable excess demand, new construction activity remains subdued. Aengevelt cites political overregulation and requirements at federal, state and local levels as causes, which place an additional strain on the commercial viability of investments alongside current interest rate levels.
