Rents are rising faster again

The rise in residential rents in Germany has accelerated again after a phase of relatively moderate increases. According to data from the Institute of the German Economy (IW), asking rents climbed by an average of 5.8 percent year-on-year in the third quarter. This was more than the average for the third quarter of the past three years (plus 4.5 percent). In all German states, the increase was above the medium-term trend.

"It shows that the momentum is increasing," said IW real estate expert Michael Voigtländer. People were increasingly looking for rental apartments, while some landlords were apparently setting higher rents because of high inflation. In addition, he said, there are catch-up effects in rural regions that still offer comparatively cheap housing.

Among the German states, asking rents rose least sharply in Baden-Württemberg, Saxony and Hesse, at a good 4 percent compared with the same quarter a year ago. They climbed the most in Saarland (up 7.9 percent), Brandenburg (9.1 percent) and Mecklenburg-Western Pomerania (10.3 percent). The annual comparison of asking rents was based on almost 1.5 million advertisements on major real estate portals. The asking rents do not yet mean any deals, but they do show the direction in the market. It is also rarely possible to negotiate rents.

In the major cities, there were relatively moderate increases in asking rents in Frankfurt (up 1.4 percent on the prior-year quarter), Stuttgart (2.4 percent) and Munich (3.5 percent). In contrast, asking rents in Düsseldorf (5.9 percent), Leipzig (7.8 percent) and Berlin (8.3 percent) increased particularly. "In the very expensive cities, the increases are lower - probably due to a lack of ability to pay," Voigtländer said. In the metropolises, rents have already reached a very high level after years of real estate boom.

Increased lending rates, high construction prices and record inflation are making home ownership less affordable. Interest rates for ten-year real estate loans have more than tripled since the beginning of the year. Many people are therefore shifting to the rental market. The shifting demand will increase the upward pressure on rents there, according to a recent study by Landesbank Helaba.

DZ Bank and the Association of German Pfandbrief Banks (vdp) also recently observed that rents for new leases have recently risen more strongly again, with growth of around five percent within a year. The reason for the "noticeably rising rents" is, in addition to the shift in demand, also the increasing immigration with many refugees from Ukraine, said DZ Bank. A high demand for affordable housing meets falling vacancy rates in the cities. This was most recently shown by a new study, according to which the vacancy rate continues to approach a value of zero percent.

Photo by Wiktor Karkocha