Germany | May 2019 Research Report Housing Market Report ...€¦ · housing market are therefore...

Housing Market Report

Germany | Full year 2019 Published in November 2020

Housing Market Report 2020 | Contents 2

Contents

Economy and Labour Market Economy and Gross domestic product .............................................................. 3Unemployment and workforce ........................................................................... 4The German housing market and the consequences of Covid-19 ................... 5

Monetary Policy, Inflation and Financing Key interest rates and inflation ............................................................................. 7Mortgage interest rates, lending volumes and household debt .................... 8

Demographic Trends Population development .................................................................................... 11Population structure ............................................................................................. 12Regional population trends ................................................................................ 13Development of households............................................................................... 17

Housing Market New construction activity .................................................................................... 18Structure of the housing stock ........................................................................... 20Prices and costs ..................................................................................................... 23Investment market ............................................................................................... 30Legal framework ................................................................................................... 28

Economy and Labour Market

In 2019, the German economy grew for the tenth year in a row, thus not only continu-

ing the longest growth phase in the reunifi ed Germany, but also setting a new record

for the number of employees. However, the Covid-19 pandemic in the spring of 2020

brought about a sudden change in the economic situation - with uncertain prospects

for the future.

Economic development is relevant for both the demand and supply in the housing market. The development of economic output has an eff ect on the disposable income of private households and consequently represents an important factor in the demand for housing both as a consumer good and as a capital good. The situation on the labour market not only refl ects this correlation, but also shows how large the proportion of those who are able to cover their demand for housing without govern-ment support. Furthermore, investments in the housing stock on the supply side increase the available supply of housing both quantitatively and qualitatively, thereby increasing the demand for additional labour on the la-bour market. The housing market is therefore interlinked with the labour market and the real economy.

Economy and gross domestic productThe German economy was once again able to continue the growth of previous years in 2019. In 2019, the price-adjusted gross domestic product (GDP, adjusted for pric-es, seasonal and calendar eff ects) was around +0.6% higher than in the previous year. This enabled the current growth phase to be extended to ten years, although growth had been much stronger in previous years - the economy grew by +2.5% in 2017 and by +1.5% in 2018. The greatest impetus for growth in 2019 came from pri-vate and government consumer spending. While consum-er spending by private households rose by +1.6% com-pared to the previous year (+1.3% growth in 2018), government consumption expenditure even increased by

+2.5%, signifi cantly exceeding the previous year‘s devel-opment of +1.4%. Although German exports continued to rise in 2019 with an increase of +0.9% over the previous year‘s fi gure, they lost momentum overall in terms of growth (by comparison, imports rose by +1.9% in 2019).

This development is also evident upon closer examination of the production sector of the gross domestic product. There were strong declines in economic output in large parts of the German industry. This was especially true of the manufacturing industry (excluding construction), which is particularly relevant in terms of its share of GDP, which declined by -3.6%, for example, and was weakened in par-ticular by weak production in the automotive industry. In the services sectors on the other hand, the opposite picture emerged. The information and telecommunication and fi -nancial and insurance services industry each recorded growth of around +2.9%. With an increase in economic out-put of +4.0% compared to the previous year, the construc-tion industry recorded the strongest growth in 2019.

The strong increases in the construction industry are also refl ected in the development of the gross fi xed capital for-mation in the construction industry, which increased signif-icantly by 3.8% compared to the previous year. In addition to the increase in civil engineering, residential construction in particular made a signifi cant contribution in this regard. The residential investment market also closed 2019 with a remarkable result. With a transaction volume for residential properties and portfolios of around €20 billion, both the pre-

Housing Market Report 2020 | Economy and Labour Market 3

vious year‘s figure (+7%) and the 5- and 10-year averages (by 16% and 56% respectively) were exceeded. Overall, this was the fourth year in a row in which the German residential in-vestment market recorded growth.

Even though economic growth in Germany has recently been somewhat weaker, the forecasts for the development of gross domestic product in 2020 averaged just about one percent, which is again slightly above the previous year‘s value. However, as a result of the global Covid-19 pandemic and the associated social and economic steps to prevent its spread, the global economic situation changed abruptly in the spring of 2020 and within a very short time triggered the worst recession in Germany‘s post-war his-tory. Against this background, a decline in gross domestic product in Germany of 6-7% is expected in 2020 (as of September 2020, DIW and IW Cologne). Low numbers of new infections in the summer months were able to dampen the economic downturn somewhat, so that most of the original economic forecasts¹ could be revised up-wards. However, the long-term economic consequences will depend in particular on whether there will be another lockdown. Against this background, the assessments of economic development must be constantly renewed. Subject to these reservations, most economic institutes are forecasting growth of around 4 percent for 2021 and thus a significant recovery of the German economy.

Unemployment and workforce development In the course of 2019, the labour market proved to be largely robust in the face of the slight economic slowdown. While the unemployment rate settled at a constant level of around 5% after years of significant decline, the number of people in employment continued to rise slightly. With a total of 45.4 million people in employment, the number of employed

persons was at a record high in December 2019. The fact that the economic slowdown and the ongoing discussions about a possible recession did not have a stronger impact on the labour market can be attributed to the high shortage of skilled workers in the domestic labour market. This had a growth-limiting effect in previous years and was able to counteract the economic downturn in this phase.

At the beginning of the year, the forecast of the German economic institutes for the development of the unemploy-ment rate in 2020 showed a slight increase in unemploy-ment to 5.1%. However, the Covid-19 pandemic and the steps taken to contain its spread have suddenly and funda-mentally changed the situation on the labour market and thus all forecasts regarding the development of employ-ment and unemployment rates. The economy and labour market are facing major challenges due to the consequenc-es of the Covid-19 crisis. In order to provide direct support to employees and companies, the Bundestag has adopted various support programmes, such as easier access to short-time work benefits („Kurzarbeitergeld“). By the end of April 2020, announcements of short-time work for around 10 million employees were recorded. This number fell con-tinuously in the following months. In August 2020, for ex-ample, short-time work was still being announced for 170,000 employees. And the number of employees actually using short-time work compensation is also declining but remains at a high level. After peaking in April at 5.82 million employees, the figure was 5.36 million in June. However, the fear that autumn 2020 could be the real test for the Ger-man labour market cannot yet be confirmed. In August 2020, the unemployment rate stood at 6.4 percent and the number of unemployed was thus around 640,000 higher than in the previous year. This does not confirm the fore-cast of the Institute for Employment Research (IAB), the


research institute of the Federal Employment Agency, which in the spring had assumed that the number of people in em-ployment could fall by around one million at peak times and unemployment could rise to over three million. However, fur-ther developments will depend in particular on the extent to which a systemic and global economic crisis occurs - these developments cannot yet be fully assessed at present.

However, this crisis has suddenly and seriously worsened the situation, especially for job seekers and young professionals entering the labour market. The number of vacancies and new appointments collapsed abruptly and nationwide in March 2020 with the Covid-19 measures. Depending on the sector, the number of new vacancies only stood at around 15- to 60% of the number of vacancies in the previous months. For this reason, it is precisely these negative effects on new entrants to the labour market that need to be cush-ioned in order to prevent high unemployment among young people and a systematic increase in unemployment among

these cohorts. At least the expectations that demographic changes will be able to partially cushion the sharp increase in unemployment and the number of people working in short-time work are optimistic. Demographic changes will ensure that more workers leaving the labour market in the coming years than new ones are added. By 2030, the age co-hort of the „baby boomer generation“, which today accounts for a significant proportion of the labour force, will have re-tired. If these demographic effects, i.e. primarily age-related exit from the labour market, were overshadowed in recent years by higher labour force participation and by workers from abroad, they could now at least partly cushion a long-term slowdown in the labour market.

The German housing market and the consequences of Covid-19After a short dip at the beginning of the Covid 19 pandemic, the residential real estate market shows a very stable de-velopment. Not only the trading volume of the institutional

Unemployment and employment


Status: May 2020Source: Federal Employment Agency, calculation: JLL

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

36

37

38

39

40

41

42

43

44

45

46

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 20192018

Employed persons according to ESVG 2010 (calendar and seasonally adjusted)Unemployment registered according to § 16 SGB III (calendar and seasonally adjusted)

Employment in mn Unemployment (in %)

2019

45,4 Mio.employees

unemployed5%


investment market was able to follow the pre-Covid 19 developments, but also the prices have continued their high level of the past years. This means that the housing segment is already considered one of the winners in the real estate market. Demand in the residential investment market has also remained stable because the asset class fulfi lled its reputation of stable cash fl ows. In contrast to commercial real estate, there have not been any major rent deferrals to date. As housing represents a basic need from the point of view of economic policy and the state has a responsibility in a social market economy to protect this need, the federal and state governments have taken various immediate measures to support tenants. These include, for example, the exclusion of termination due to rent debts for a period of three months, which also in-cludes deferrals of gas, electricity and telephone bills. The immediate measures taken by the state to cushion the economic downturn, such as the payment of short-time working, can also be mentioned in this context. Overall, no long-term changes are to be expected for the residen-tial asset class, whose risk profi le is classifi ed as very de-fensive, because the consumer good “housing”, repre-sents a basic need and is therefore very consistent in its inherent characteristics. However, the rental growth po-tential in this segment will remain limited. On the one hand, income is expected to stagnate due to the econom-ic downturn. On the other hand, immigration in the con-urbations has declined signifi cantly, while new supply has been further expanded in recent years. This development has eased the excess demand somewhat for the time be-ing. Nonetheless, the segment of residential real estate will continue to be in high demand, as resistant capital investments are currently of particularly high interest.

6

investment market was able to follow the pre-Covid 19 developments, but also the prices have continued their high level of the past years. This means that the housing segment is already considered one of the winners in the real estate market. Demand in the residential investment market has also remained stable because the asset class fulfi lled its reputation of stable cash fl ows. In contrast to commercial real estate, there have not been any major rent deferrals to date. As housing represents a basic need from the point of view of economic policy and the state has a responsibility in a social market economy to protect this need, the federal and state governments have taken various immediate measures to support tenants. These include, for example, the exclusion of termination due to rent debts for a period of three months, which also in-cludes deferrals of gas, electricity and telephone bills. The immediate measures taken by the state to cushion the economic downturn, such as the payment of short-time working, can also be mentioned in this context. Overall, no long-term changes are to be expected for the residen-tial asset class, whose risk profi le is classifi ed as very de-fensive, because the consumer good “housing”, repre-sents a basic need and is therefore very consistent in its inherent characteristics. However, the rental growth po-tential in this segment will remain limited. On the one hand, income is expected to stagnate due to the econom-ic downturn. On the other hand, immigration in the con-urbations has declined signifi cantly, while new supply has been further expanded in recent years. This development has eased the excess demand somewhat for the time be-ing. Nonetheless, the segment of residential real estate

Housing Market Report 2020 | Monetary Policy, Infl ation and Financing 7

Monetary Policy, Infl ation and Financing

Key interest rates and infl ationThe interest rate for the main refi nancing operations of the ECB, the so-called key interest rate, is the most important control variable for mortgage interest rates: a reduction in the key interest rate facilitates borrowing by commercial banks, which pass on these advantages on to their bank customers in competition with other banks. This subsidized fi nancing results in lower borrowing costs for bank custom-ers, so higher prices can be off ered for tangible assets such as real estate. This interdependence between monetary

Effective interest rates for mortgage loans with a further decline in 2019. Further

expansion of expansive monetary policy due to economic crashes and low core in-

fl ation - and a normalisation of interest rate policy in the European currency area

is a distant prospect.

policy control and asset prices is the direct transmission channel of monetary policy. This is particularly relevant, as real estate is usually fi nanced to a large extent by bor-rowed capital. In addition to this direct eff ect, other indi-rect transmission mechanisms of monetary policy have an impact on real estate prices. One notable factor here is the demand-induced price increase caused by portfolio restructuring: with key interest rates falling, bonds become less attractive than equities or tangible assets such as real estate. Consequently, demand for the latter is stronger

Key interest rates and infl ation

* Interest rate of the European Central Bank for main refinancing operations (end of month)** Consumer price inflation, year-on-year changes (in %)

-1.0

0.0

1.0

2.0

3.0

4.0

5.0 Key interest rate*Consumer price inflation Germany**Consumer Price Index EU**

%

2006

2005

2004

2003

2002

2001

2000

1999

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2019

2018

Status: May 2020Source: Deutsche Bundesbank, Calculation: JLL

Housing Market Report 2020 | Monetary Policy, Infl ation and Financing 8

and prices rise. Hence, with an expansionary monetary policy, infl ation of tangible asset values generally occurs through various direct and indirect transmission channels.

The primary monetary policy objective of the ECB is to maintain price stability in the European currency area.¹ The infl ation rate has fallen from up to 6% in the early 1990s to around 2% since the mid-1990s. Triggered by the global fi nancial crisis, it even fell briefl y into negative territory (de-fl ation) by the second half of 2009. Since this low, consumer price infl ation rose again to around 2.0% in the course of the economic recovery in 2010 and 2011 but returned to negative territory in April 2016. Aft er reaching levels of over 2% in 2018, the infl ation rate has again fallen signifi cantly in 2019. The ECB is guided by core infl ation i.e., price increases excluding food and oil as its primary control parameter, which has been below the target of 2% in recent years.

Mortgage interest rates, lending volumes and household debtThe interest rate for the main refi nancing business of the ECB is the main benchmark for mortgage interest rates.

For this reason, with successive key interest rate cuts over recent decades, mortgage interest rates in Germany also fell signifi cantly from 9% in 1992 to 2% since the beginning of 2015. Aft er falling to 1.6% in 2016, mortgage interest rates settled at around 1.95% in 2018. The historically low mort-gage interest rates continue to be very favourable for both institutional and private investors on the fi nancing side of residential property investments.

Due to the favourable fi nancing level, the share of mort-gage loans with long-term fi xed interest rates has also increased in recent years. While the share of housing loans with a term of more than ten years was below 20% around twenty years ago, these loans now account for almost half of all mortgage loans.

The zero interest rate policy of the European Central Bank is putting many private and cooperative banks and savings banks under pressure. This is because the low level of inter-est rates has also led to a decline in returns in the banking business, which traditionally depends on the interest margin between lending and deposit income. This also has an im-

Eff ective interest rates and new loan volume

Status: May 2020Source: Deutsche Bundesbank,Calculation: JLL

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0

5,000

10,000

15,000

20,000

25,000

2011 2012 2013 2014 2015 2016 2017 20192018

New business volumes Banks/housing loans to private households totalEffective interest rates Banks/New business/Secured home loans to households, initial rate fixationover 10 yearsover 10 years

New loan volume (in € mn) p.a. Effective interest rate (in %)

Housing Market Report 2020 | Monetary Policy, Inflation and Financing 9

pact on interest margins and credit standards Since the new EU directive for real estate loans in 2016, the Bank Lending Survey of the ECB shows that credit standards have tended to relax and margins have narrowed ² However, compared with historical data (e.g. the relaxation in 2004-2008), these changes are rather small.

A reduction in key interest rates and capital costs is ac-companied not only by asset price inflation, but also by an expansion in the volume of credit. An increasing credit-financed consumption of assets can further expand consumption through income and wealth effects, trigger-ing strong price increases. A self-reinforcing mechanism of this kind means that an expansion in the volume of credit always harbours the risk of a property price bubble, as was observed, for example, in many European and US real estate markets before the 2007/08 financial crisis. In Germany too, the sharp decline in mortgage interest rates has led to an increase in the credit volume of private households. The average monthly volume of new busi-ness in 2019 was around €23 billion. However, unlike in

the run-up to the US housing bubble, this increase in hous-ing loans between 2011 and 2020 is relatively moderate.

In addition, a downward trend can also be observed in private household debt in Germany. In addition to overall debt (as a percentage of disposable income), debt from mortgage loans has also declined. The favourable financ-ing conditions and low cost of capital do not therefore lead to a significant deterioration in affordability due to the increased price of residential property. However, the higher prices also lead to higher equity ratios and ancil-lary purchase costs, which make access to residential property increasingly difficult. This systematic selection masks the affordability presentation under consideration.

Given the strong price increases in the German residential real estate market, the development of credit volumes and standards as well as the indebtedness of private households can only be described as a credit volume-induced price bubble to a limited extent.

Fixed-interest periods for housing loans to private households in Germany

2003 2004 2008200720062005 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0

10

20

30

40

50

60

70

80

90

100

variable or up to 1 year from over 1 to 5 years from over 5 to 10 years of over 10 years

Status: May 2020Source: Deutsche Bundesbank, Calculation: JLL

%

Housing Market Report 2020 | Monetary Policy, Inflation and Financing 10

ForecastSince the US Federal Reserve (FED) has been successively raising its key interest rates for several years now, there has been no normalisation of interest rate policy in the European currency area. Even if indirect monetary policy measures such as the ECB‘s bond purchases have been gradually scaled back, the ECB continues to pursue a zero interest rate policy.As a result of the global spread of the Covid-19 virus and the associated abrupt economic slump in spring 2020, the FED has massively reduced its key interest rate by half a per-centage point. This was due not only to the massive move-ments on the international financial markets, but also to the significant deterioration of the global economic outlook for 2020 The ECB has also reacted. In view of the increasing liquidity shortfalls and the significantly clouded economic

outlook, it has issued an emergency purchase program in the amount of €750 billion. This means that the ECB will not only buy government bonds, but also corporate bonds for the first time. After years of extremely expan-sive monetary policy, this monetary support now adds an unexpected tightening. Further monetary policy measures cannot be ruled out for the rest of the year. Accordingly, the economic situation could lead to inter-est rate cuts, which would further increase the negative deposit rate. In the light of current economic develop-ments, a high level of uncertainty remains here as well. However, the initial situation limits the scope for interest rate policy. Against this background, a continued high demand for real assets, such as condominiums, and a very favourable financing environment can be expected.

Annuity - Income ratio Private household debt in Germany

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Q1-

Q3

Annuity/income ratio*

75

80

85

90

95

100

105

110

115

120

125 Index (2010=100)

Stand: May 2020Quelle: German Federal Bank; *Calculations based on data from the Association of German Pfandbrief Banks (vdp). 1 Annuity of a mortgage loan with fixed interest rate agreement (between five and ten years) with a hypothetical total term of 30 years. 2 Disposable income per household in Germany, nominal. 3 Purchase prices and rents of condominiums. German Central Bank, 2020.

*Status: May 2020Source: German Federal Bank; loans to private households and private non-profit organizations

40

60

80

100

120in % of disposable income

0

20

40

60

80 in % of GDP

Debt total in % of GDPthereof housing loans in % of GDPDebt total in % of disposable incomethereof housing loans in % of disposable income

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2019

Housing Market Report 2020 | Demographic Trends 11

Population developmentFollowing reunifi cation, the population of Germany grew to around 82.5 million by 2002. The growth in the 1990s was due particularly the immigration of 2.8 mil-lion ethnic Germans from Eastern Europe; however, the population decreased steadily between 2002 and 2010. The main reason for this was the negative balance of natural population growth. Between 2008 and 2009, Germany was even considered an emigrant country and only recorded a positive migration balance again in 2010. Since then, this balance increased steadily, reaching its highest level since reunifi cation in 2015 at around 1.139 million. The introduction of the free movement of work-ers which included Eastern EU member states in May 2011 and the increasing attractiveness of the German labour market for workers from southern EU countries where the Euro crisis had a severe impact on the labour market, played a major role in this trend. There was also an increase in refugee migration in 2015. In recent years, the high level of immigration has mainly caused a short-term increase in the population. Furthermore, since the end of 2012, the number of births in Germany has risen more strongly again, even though in the same period the number of deaths has risen further due to increasing ageing, so that overall the surplus of deaths has increased.³ According to calculations by the Federal Statistical Off ice, Germany’s total population was around 83.2 million in 2019Although this was a new maximum level, population growth has slowed down somewhat compared to the development of previous years.

Demographic changes lead to an increase in

the number of households despite an absolute

population decline. Overall, however, the regional

differences in the demographic structure in particular are clearly increasing. This

is particularly relevant for the housing demand.

Despite the population trends of recent years, a de-cline in the population is expected in the long term. The actual extent of the population decline depends mainly on future developments in fertility rates, life ex-pectancy and net migration The main reason for this expectation is the progressive ageing of the population, i.e., that the older population groups are becoming relatively larger The main reason for this expectation is the progressive ageing of the population, i.e., that the older population groups are becoming relatively larger. The chart „Development of the population“ il-lustrates various scenarios depicted by the Federal Sta-tistical Off ice, which clearly show that the forecasts are strongly infl uenced by the above-mentioned factors.

The chart shows that the degree of population growth and structural demographic changes in the age struc-ture can be mitigated by a high level of steady net im-migration. With the same fertility rate (1.4 children/woman) and life expectancy (84.8/88.8), the population in 2040 will be between 82.28 million (with net migra-tion of 300,000) and 73.39 million (with net migration of zero. The large diff erences between the scenarios make it clear that the forecasts are strongly depend-ent on the above-mentioned infl uencing factors and that the expected forecast uncertainty is considerable The estimate of net migration in particular is proving diff icult, as it is strongly infl uenced by economic and political conditions at home and abroad. While Germany

Demographic Trends

recorded an average net immigration of around half a million people between 2010 and 2015, there had even been some migration losses in the years prior to that. This shows that it is difficult to assume that the current high level of international immigration is a long-term trend.

Population StructureThe gradual decline in the fertility rate and resulting nega-tive balance in the natural population is also reflected in the age structure of the population. With a consist-ently low birth rate and increasing life expectancy, the relative share of older population groups has steadily

grown. With the help of existing population figures and current birth rates, it is also possible to predict the future development of the age structure, as is done, for exam-ple, by the calculations of the Federal Statistical Office.

While in 1980 the proportion of under 20-year-olds was over a quarter of the population, by 2010 it had fallen to under a fifth. From 2040 onwards, the proportion of under 40-year-olds will be around 39% of the total population. Conversely, the proportion of over 65-year-olds increased from 15% in 1980 to 20% in 2010. In 2040, this share will rise to around 28%.

The increasing ageing of the population leads to an in-creasing old-age dependency ratio, which is the percent-age ratio of the population at retirement age (number of 65-year-olds and older) to the age cohort of the working population (20 to under 65 years). An increasing old-age dependency ratio not only leads to a gradual reduction in the labour force potential, but also to an increasing burden on the social security system. In 1980, the old-age dependency ratio was still just under 23, i.e. four people between the ages of 20 and 65 were responsible for one person of retirement age, but by 2018 the ratio has al-ready reached around 31. The ratio is expected to rise to almost 48 by 2040. This means that statistically there will only be around two employed people to one person of retirement age. However, as society ages, the youth de-pendency ratio (the proportion of young people under 20 years of age) is also declining, which could to some extent slow down the increase in the proportion of the popula-tion groups to be cared for by the working population.

The increasing ageing of the population also has a sig-nificant impact on housing markets. As the individual age groups represent different consumer groups character-ized by special lifestyle concepts and ideas as well as income situations and housing preferences, they also exhibit very different housing demands. A structural de-mographic change has a major impact on the housing market, especially if the gap between current housing demand and existing housing widens considerably. This gap relates in particular to the living space of the dwell-ings in demand and the dwellings on offer, but can also

Population development 2060


Status: May 2020Source: destatis, JLL

50

55

60

65

70

75

80

85

90

2,1 children/women, lifeexpectancy(2060) 84,8/88,8 years, long-term net migration 100,000

1,4 children/women, lifeexpectancy(2060) 84,8/88,8 years, net migration 300,000


1,4 children/women, lifeexpectancy(2060) 84,8/88,8 years, net migration zero


Population in mn

2001

2005

2009

2013

2017

2021

2025

2029

2033

2037

2041

2045

2049

2053

2057

2059

2019-2059 Forecast


affect subsequent characteristics such as the furnishings.In addition, demographic trends also have an indirect impact on demand for housing through interest rates. The marked decline in interest rates in the western industrial nations, as observed for several decades, is partly attribut-able to the ageing of the population. There are two main reasons for this are the longer life expectancy at retire-ment age which forces people to save more money dur-ing their years of working, and the lower birth rate which has made capital more plentiful and therefore cheaper compared to work. The reduction in interest rates is lead-ing to an increase in demand for unconventional asset classes such as tangible assets, and thereby to real estate becoming more attractive as an investment. Moreover, at the institutional level, the statutory pension insurance in Germany has been successively reformed since early 2000 to prevent a sharp rise in contribution rates in the wake of the rising old-age dependency ratio. As part of these reforms, private old-age provision has been given a much more significant role and the demand from private house-holds for reputedly safe asset classes, such as residential

property, has increased even further. This, in combina-tion with the ECB’s zero-interest policy, has a significant impact on the demand for real assets such as real estate.

Regional Population TrendsThe effects of demographic trends vary from region to region and must therefore also be considered on a spatial basis. To a large extent, regional differences in popula-tion size and structure can be attributed to systematic internal migration. Local living conditions and the labour market are the most important factors influencing internal migration. The tertiary sector, which is particularly rel-evant to employment in the labour market, is to be found above all in metropolitan regions and regional centres, because there, companies not only benefit from neces-sary agglomeration advantages, but also from a pool of skilled labour available to them. The same applies to people in search of employment. In addition, the grow-ing services sector is characterized by a low demand for space and can therefore also settle in strategically favour-able locations with a high land intensity. Furthermore,

Age structure of the population

Source: Destatis, BBSR, JLLStatus: May 2020

0

500

1,000

1,500

femininemasculine

0

500

1,000

1,500

unde

r 1 y

ear

3-ye

ar-o

ld

6-ye

ar-o

ld

9-ye

ar-o

ld

12-y

ear-

old

15-y

ear-

old

18-y

ear-

old

21-y

ear-

old

24-y

ear-

old

27-y

ear-

old

30-y

ear-

old

33--y

ear-

old

36-y

ear-

old

39-y

ear-

old

42-y

ear-

old

45-y

ear-

old

48-y

ear-

old

51-y

ear-

old

54-y

ear-

old

57-y

ear-

old

60-y

ear-

old

63-y

ear-

old

66-y

ear-

old

69-y

ear-

old

72-y

ear-

old

75-y

ear-

old

78-y

ear-

old

81-y

ear-

old

84-y

ear-

old

87-y

ear-

old

90-y

ear-

old

93-y

ear-

old

96-y

ear-

old

100

year

s and

mor

e99

-yea

r-ol

d

Population in mn

Population in mn

2019

2060 (Projections)

the younger age cohorts in particular show increased mobility and greater fl exibility in their choice of regional residential location, which goes hand in hand with in-creased higher education and digitisation. As the regional variation of trends in the labour market plays a decisive role in determining internal migration, it also represents an important driver of the regional demand for housing. The main benefi ciaries of this trend are conurbations and their environs, which are characterized by a high quality of life and a high demand for labour. Conversely, the los-ers are outlying rural areas and structurally weak regions with poor infrastructural connections, which must accept a loss of the young population to the conurbations. According to studies by the Federal Institute for Research on Building, Urban Aff airs and Spatial Development (BBSR), the following regions will benefi t from population growth by 2025: southern Bavaria including Munich, the Stuttgart region, the regions along the Rhine river including Freiburg, Mannheim/Ludwigshafen, the Rhine-Main region and the Cologne/Bonn region, parts of north-western Germany and the Hamburg and Berlin regions including their neigh-bouring districts. At the federal state level, the city states, the southern states of Bavaria and Baden-Württemberg and Schleswig-Holstein are expected to record popula-tion growth by 2020. This trend is expected to continue in these states until 2040, with the exception of Schleswig-Holstein, which means that there will be a considerable increase in the demand for housing, especially in areas where there is already excess demand for accommodation.

Development of HouseholdsThe number of households is a key factor in housing demand and therefore particularly relevant for regional studies of demand trends. The growth in the number of households is infl uenced not only by population trends but also to a large extent by structural demographic changes. Two main trends in household developments can be ob-served: fi rstly, there is a continuous decline in the size of the household, i.e. the number of people per household. This can be explained by the change in the age structure of the population. The older age cohorts, whose relative share of the total population is growing steadily, have smaller household sizes. But there are also more people of the other age groups increasingly living alone. This pro-cess of singularization is due to a changing way of life for people, characterized by an increased number of divorced and single parents, declining household sizes in younger age groups and a shift in the age of starting a family. Closely linked to this development is the second observa-tion, a steady growth in the number of households. While the population in Germany grew in average by around 0.85% per year between 2011 and 2018, the number of households increased by around 0.95% per year to 41.38 million over the same period (39.50 million in 2011. Reduc-ing the size of average households can increase the num-ber of households, despite the overall population declin-ing. As a result, an increase in the number of households since reunifi cation can be observed even in the new federal states, where the population has declined signifi cantly.



Regional population forecast (2015-2025)

Wohnungsmarktbericht Deutschland 2019

© 2019 Jones Lang LaSalle SE, Inc. All rights reserved 13

Haushaltsentwicklung

Die Entwicklung der Zahl der Haushalte wird nicht nur von der Bevölkerungsentwicklung, sondern auch maßgeblich von den strukturellen demographischen Veränderungen beeinflusst. So lassen sich insbesondere zwei wesentliche Tendenzen in der Haushaltsentwicklung beobachten: Zum einen ist ein kontinuierlicher Rückgang der Haushaltsgröße, das heißt der Personenzahl je Haushalt, zu beobachten. Dies lässt sich mit der Veränderung der Altersstruktur der Bevölkerung erklären. Die älteren Alterskohorten, deren relativer Anteil an der Gesamtbevölkerung stetig wächst, weisen kleinere Haushaltsgrößen auf. Aber auch mehr Menschen der anderen Altersgruppen leben zunehmend alleine. Verantwortlich für diesen Prozess der Singularisierung ist eine sich verändernde Lebensweise der Menschen, die sich durch eine erhöhte Zahl von Geschiedenen und Alleinerziehenden, sinkenden Haushaltsgrößen der jüngeren Altersgruppen sowie einer Verschiebung des Familiengründungsalters kennzeichnet.

Regionale Bevölkerungsprognose (2012-2035)

Quelle: BBSR, Berechnung: JLL














Population forecast 2015-2025


While the population is expected to decline from 2021 on-wards, according to the projections by the Federal Statisti-cal Off ice, the number of households is expected to grow to around 43.2 million (+5.9% by 2015) by 2035. As such, a steadily rising demand for housing can be expected in Ger-many until at least 2035 due to higher household numbers. However, here too the spatial diff erences are considerable, as can be seen from a separate analysis of the eastern and western states. While between 2015 and 2035 the number of households in the eastern states will decline by 7%, they are expected to grow by 3% in the western states.

The sizes of households will continue to reduce in the fu-ture. While in 2018 single-person households accounted for around 40.8% of all other household sizes, their share will rise to about 43% by 2030. The proportion of single-person households with older people is particularly high. Of the 16.9 million single-person households, around 35% are made up of people aged 65 years or older. Similar de-velopments can be observed for two-person households, whose relative share of all households will also increase in the future. Conversely, the number of households with three or more people is declining. According to the Federal Statistical Off ice, their share is expected to decrease from 24.4% to around 22% between 2018 and 2030. Accord-ingly, the average household size will decrease from 1.9 people per household in 2017 to around 1.93 in 2030.

Generally, the demographic trends in Germany over the coming decades can be summarized as follows: the population is expected to decline in absolute terms and to age at the same time. This change in the demo-graphic structure, combined with changing lifestyles, will lead to a steady reduction in household sizes. Due to a

strong divergence in internal migration, there are also regional diff erences in demographic trends. In turn, this will lead to a rise in the number of households by 2030, despite an expected decline in population. The continu-ing economic slump in the spring of 2020 could lead to changes in lifestyles in the medium term, which could counteract the trend of steadily shrinking households. Here, for example, a slight increase in suburbanisation is expected due to increased fl exibility in everyday work-ing life and an increase in residential communities.These demographic trends are also having an impact

Number of households

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

39,500

40,000

40,500

41,000

41,500

42,000

42,500

43,000

43,500

Source: destatis, BBSR, JLLStatus: May 2020

Projections as of 2019Number of households (in 1,000)

on demand for housing and therefore, also on the hous-ing market and new construction activity. The following main trends in housing demand can be identifi ed: due to the singularization and ageing of the population, there is a high demand for new smaller, centrally-located and age-appropriate dwellings. While the demand for smaller dwellings for younger households in metropolitan regions depends on the economic framework conditions and the local labour market, demographic changes are very stable trends in the development of demand. However, not only the demand for smaller housing units remains high, but also the demand for larger housing units. This will increase again in the coming years, particularly in the metropolitan regions. This is due to the fact that these regions have ex-perienced a high infl ux of younger households and high birth rates over the past decade, which will lead to a re-newed need for larger housing units in the coming years.

Development of the number of households by household size


Status: May 2020Source: destatis, BBSR, JLL

75

80

85

90

95

100

105

110

115 Index (2015=100)

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

one-person household

2-person household

3-person household

4-person household

5-person household

Housing Market Report 2020 | Housing Market 18

Housing Market

New construction activityNew construction activity in the regional housing markets is mainly driven by the need for new buildings, which re-sults from the correlation between housing demand and existing housing supply. Therefore, the need for new build-ings is not only a refl ection of the development of house-hold fi gures, but also of the need for replacement, i.e. the qualitative match between supply and demand. Moreover, there are the regional diff erences between housing de-mand and supply: regional diff erences in housing demand

Residential housing construction is being curtailed by

rising construction and land prices, housing policy interven-

tions and a shortage of land in urban areas. As a result, supply

is lagging behind demand on the housing markets, even though the

number of completed dwellings has increased overall.

in Germany are driven by demographic and technological changes in the labour market. Increasingly, this develop-ment is causing a regional polarization of the housing mar-kets, which is refl ected in higher vacancy rates in structural-ly weak regions and excess demand in economically strong regions. These developments are particularly refl ected in new construction activity.A total of 286,000 new dwellings were completed in 2018. As a result, the level was similar to that of the previous year.

Supply and demand: Completions*, building permissions and forecasted demand

* Construction and permits for apartments in newly constructed buildings

0

100

200

300

400

500

600

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

**20

1620

1720

1820

1920

2020

2120

2220

2320

2420

2520

2620

2720

2820

2920

30

Total housing completionsHousing completions (MFH)

Total housing permissionsHousing permissions (MFH)

Total forecasted demandForecasted demand (MFH)

Dwellings units (in 1,000)

Status: May 2020Source: destatis, BBSR, JLL

Of the dwellings completed in 2018, 250,000 were new dwellings in residential buildings (an increase of 8.0% over 2017). This increase resulted mainly from the increase in completions of dwellings in multi-family (+ 9.2). The num-ber of single-family and dual-family homes fell slightly or stagnated overall (-3.7% and 1.5% respectively). However, the decline in student residences was more pronounced, with the number of completed buildings falling by -21.2%.

This means that at national level, the aim of signifi cantly in-creasing new construction activity once again fell short of ex-pectations. In addition to a decline in existing potential fl oor space, housing policy confl icts can also be cited as the rea-son for the only moderate increase in construction activity. In the case of re-densifi cation, for example, eff orts through ur-ban housing policy are increasingly being hampered or even brought to a halt by the confrontation between the individu-

al interests of local residents and the common good. All in all, this creates a situation in the housing markets which are suff ering from continuing pressure on demand, in which the goals of the market players are increasingly in confl ict: high housing costs on the one hand require inexpensive rental housing, which is becoming increasingly diff icult to realise on the freely fi nanced market with rising construction and land prices, and on the other hand more new construction, which increases the intensity of land use, thus worsening the quality of life for local residents.

Furthermore, the scarcity of new construction capacity in the construction industry has signifi cantly hampered new construction activity in recent years. With just under 700,000 dwellings in 2018, the construction surplus (ap-proved but not yet completed dwellings) is at a record high. The reason why more and more construction projects have been approved than completed in recent years is due to the lack of manpower in the construction industry.

Due to the high level of surplus construction, a further in-crease in residential completions is expected in the coming years. This is because at around 347,000 new dwellings, the number of approved dwellings in 2018 remained at the lev-el as in the previous year and has therefore increased the surplus construction once again. However, especially in the conurbations and important regional centres, new con-struction activity is expected to generally lag behind de-mand. This is because fl ourishing labour markets in Germa-ny’s cities mean that the demand for labour and, as a result, the demand for housing in conurbations and region-al centres remains high.

Completed apartments by type of residential buil-ding - 2018, with change compared to previous year



-3.7%

1.5%9.2%

-21.2%

83,200Single-family houses

19,810Two-family houses

13,021Dormitories

134,084Multi-family houses


Structure of the housing stockIn 2018, the total housing stock in Germany was around 42.26 million residential units Detached houses accounted for a share of 50.1% and therefore around half of this. Semi-detached houses accounted for 12% of the total stock and the proportion of terraced housing was 31.7%. However, large regional diff erences can be observed in the structure of housing construction and therefore, due to increasing population density, more land-intensive residential devel-opment can also be found. For example, as part of the Rhein-Ruhr metropolitan region, Düsseldorf has a very dense urban structure which is refl ected in the local build-ing structure. The proportion of terraced houses here is 74.1%, while detached houses account for just 11.7%. Con-versely, the proportion of detached residential buildings in rural regions is usually signifi cantly above 90%.

The housing stock can also be clearly diff erentiated accord-ing to building age classes. This classifi cation results from signifi cant historical events, which can be roughly divided into three categories: the period before 1949, the period between 1949 and 1990 and the new buildings constructed since 1991. Due to the high level of current construction ac-tivity, the phase from 2014 onwards can already be identi-fi ed as the fourth signifi cant period of increased construc-tion activity.

The fi rst category of „pre-war buildings“ accounts for around 27% of the average German housing stock. The share of dwellings completed before 1949 is around 43% in the fi ve eastern German states, while the share of this age class in the western German states is only around 22%. This indicates that the share of pre-war buildings in eastern Ger-many is about twice as large as the share of this age class in western Germany.

The housing stock from the period from 1949 until German reunifi cation in 1990 forms the second age class. Due to war damage, war refugees and a high birth rate aft er the

Second World War, there was a massive housing shortage in Germany and consequently brisk construction activity. As a result, the post-war buildings (1949-1978) represent by far the largest housing stock in the country, at around 46%. In the former federal territory, almost 51% of all dwellings in the current housing stock can be assigned to this period. In comparison, the proportion of dwellings completed between 1970 and 1990 is just 12.5%. In eastern Germany, the shares of these two periods are 31% and 13.2% respectively.

Due to diff erent housing construction policies pursued in the socialist German Democratic Republic (GDR) and the market-economy oriented Federal Republic of Germany (West Germany), the housing stock also diff ers considerably in terms of construction quality In the GDR, private con-struction activities for the rental market almost ceased aft er the Second World War Public investment in pre-war stock was politically undesirable until the 1980s and was very limited. Meanwhile, industrially prefabricated residential buildings were erected from the 1970s onwards and still characterize the townscape in many eastern German cities today. In West Germany, from the end of the war until the

Housing stock

Status: May 2020Source: destatis, Mikrozensus, JLL

41.0 41.2 41.4 41.7 42.0 42.2

05

101520253035404550

2013 2014 2015 2016 20182017

Westgermany Eastgermany

Dwelling units in mn

1970s, attractive state loans and subsidies helped private, municipal and cooperative institutions to rebuild some pre-war stocks and to build new housing stock. Rental caps, so-called cost rents, were attached to state loans and subsidies, and remained applicable until the loans were repaid in full.

The third age class is made up of the housing stock con-structed since 1991. On average, this accounts for around 14% of the total housing stock in Germany. The diff erences between the eastern and western states are considerably narrower than in the previous decades. However, it is evi-dent how immigration from eastern Germany resulting from reunifi cation triggered a construction boom in west-ern Germany, which then shift ed to eastern Germany in the mid-1990s due to the off er of state subsidies.

Overall, the building age classes of the 1949-1978s continue to dominate the housing stock in Germany. This applies in particular to the territory of the western federal states, while in the eastern federal states, dwellings from the pre-war peri-od also have a high signifi cance for the housing stock.

Due to the increased demand for housing and regional dif-ferences, there has been an increase in construction activity

Residential buildings by age group

over the past decade, and it is currently not possible to say whether the peak has already been reached. This period can be categorised as the fourth phase of increased construc-tion activity. Turnover in residential construction alone has more than doubled in the last ten years. Hence, new hous-ing construction is not regarded as a pillar of the overall construction industry in Germany without good reason. Sustained high construction activity in housing construction can be expected in the coming years. There are two main reasons for this. It is precisely the building age classes of the post-war period that are currently in the phase of subse-quent use of their life cycle. This has the consequence that the housing stock of these building age classes is in in-creased need of modernization, which must be fulfi lled now and in the future, or which must be adequately replaced. Moreover, the defi cit in new housing construction remains, especially in the conurbations.

Home ownership ratioAccording to the micro-census and calculations by the Federal Statistical Off ice, the home ownership rate in Ger-many in 2014 was around 45.5%. Considerable regional diff erences can be observed between western and east-ern Germany on the one hand, and the city states and fed-


0 10 20 30 40 50 %

Vor 1919

1919bis 1948

1949bis 1978

1979bis 1986

1987bis 1990

1991bis 2000

2001bis 2010

2011und später

National averageWestgermanyEastgermany including Berlin

Stand: May 2020Source: destatis, Mikrozensus, JLL


eral states on the other. For example, while Berlin and Hamburg have home ownership rates of 14.2% and 22.6% respectively, the average home ownership rate in the east is around 33.7% and in the west 46.8% (Saarland leads the field with a home ownership rate of 62.6%).

The difference between the two parts of the country results mainly from the different orientation of housing policy in the period after the Second World War.

The differences between the city states and federal states result from the development structure and the market entry restrictions. As the city states are more densely populated and have a higher land intensity, land and property prices are also higher there. In these markets, more equity capital is therefore absolutely essential for the acquisition of resi-dential property. This means that income and property-de-pendent market entry restrictions exist there that prevent households in lower wealth and income groups from pur-

chasing residential property. On the other hand, with higher land intensity, fewer detached residential properties (i.e. de-tached, semi-detached or terraced houses) can also be found which are predominantly occupied by owner-occupi-ers due to their individual characteristics.

In a European comparison, the home ownership rate in Ger-many is relatively low. Only Switzerland has a lower rate of 35%. By contrast, the highest proportions of homeowners are found in Spain (85%) and Norway (77%). The low home ownership rates in Germany can be attributed above all to the institutional characteristics of the rental market, the ori-gins of which can be traced back to the post-war housing ini-tiative and to the lack of opportunities to own residential property in the former GDR. The German rental housing mar-ket has a high standard of rental housing construction, offers a broad and differentiated range of rental apartments, regu-lates the development of rental prices for existing dwellings and is characterized by a high level of protection for tenants.

0

10

20

30

40

50

60 1998 20142006%

Germ

any

Bade

n-W

ürtt

embe

rg

Bava

ria

Berli

n

Bran

denb

urg

Brem

en

Ham

burg

Hes

se

Low

er S

axon

y

Nor

th R

hine

-Wes

tpha

lia

Rhin

elan

d-Pa

latin

ate

Saar

land

Saxo

ny

Saxo

ny-A

nhal

t

Schl

esw

ig-

Hol

stei

n

Thur

ingi

a

Mec

klen

burg

-W

este

rn P

omer

ania


Home ownership ratios


This makes the option of hedging against possible rental price risks through home ownership less attractive.

However, due to the high dynamism of the German housing market and the low attractiveness of bonds, owner-occu-pied housing has become much more attractive to private households over the past decade. This can also be seen from the fact that the home ownership rate in the youngerpast has risen continuously. According to studies of the Fed-eral Institute for Research on Building, Urban Aff airs and Spatial Development (BBSR), the ownership rate in West Germany will stabilize at around 47 % by 2025 and in East Germany to around 36 %.

In addition to a growing home ownership ratio, it is evi-dent that this trend is not asset-neutral, but that the home ownership ratio is rising most strongly in the upper income and wealth groups. Especially in markets with strong demand, it is evident that the group of households capable of purchasing residential property is becoming

ever smaller as prices rise. High capital adequacy require-ments and ancillary purchase costs are the main factors hampering access to home ownership.

This means that the upper income and wealth groups, which have relatively high home ownership rates in the high-demand residential areas, have been participating to an above-average extent in the price developments of re-cent years. This can also be traced back to the polarization of the regional housing markets: while very rural regions with high rates of home ownership have supply surplus, metropolitan regions with few and already relatively wealthy homeowners show high demand for housing and strong price increases for residential real estate.

Commercial and public housing companies Owner-occupiers, i.e. homeowners who use their residen-tial property for their own residential purposes, account for around 17.3 million residential units, which corre-sponds to around 43% of the total stock. In addition to

Largest private housing companies (2019)

Companies Location Housing Units

Vonovia Germany 395,769

Deutsche Wohnen Germany 164,121

LEG Immobilien Germany 133,969

Vivawest Wohnen Germany 118,925

TAG Immobilien Germany 84,426

Grand City Property Luxemburg 82,869

Adler Real Estate Germany 60,854

BUWOG* Austria 48,828

Covivio** Germany 39,060

Wohnbau GmbH Germany 17,964

* Acquired by Vonovia in 2018.** Immeo was merged with Foncière des Régions on 1 June 2018 under the name Covivio,

therefore no annual reports (as of Jan. 2020) available yet.

Source: Business reports of the housing companiesStatus: December 2019


owner-occupiers, two other main groups of homeowners can be identified: professional commercial landlords and private small landlords. Private small landlords who manage rental apartments independently, are the largest providers of rental apartments in Germany. These home-owners account for 13.9% of the total housing stock. Pro-fessional landlords who hold a total of 7.9 million dwell-ings can, in turn, be divided into three subgroups: Firstly, the group of private-sector providers of rental apartments which together hold a portfolio of around 2.86 million dwellings (corresponds to a share of 7%) and is character-ized by a high degree of heterogeneity. This group con-sists of a large number of different owners who can be roughly broken down into traditional owners of company housing, banks and insurance companies with their own residential portfolios and the players in funds and stock corporations who have built up their portfolios through

investments and transactions. The largest private housing companies are listed in the following table.

Secondly, professional landlords include the group of public housing companies owned (or partly owned) by municipalities, the federal states and the federal govern-ment, as well as housing cooperatives. The largest munic-ipal housing companies are listed in the following table. Together, this group holds around 4.69 million dwellings (equivalent to around 13% of the total housing stock), which is primarily aimed at the target group of low-in-come and socially deprived households. As housing is a basic need from an economic perspective, interventions in the housing market are justified by the social responsi-bility of the state. The state has direct instruments at its disposal in the form of indirect (“Subjektförderung”) and direct (“Objektförderung” – social housing construction)

Largest municipal housing companies (2019)

Companies Location Housing units

SAGA GWG Hamburg 134,458

Gewobag Berlin 77,929

HOWOGE Berlin 70,308

Degewo Konzern Berlin 66,365

Nassauische Heimstätte/Wohnstadt Hesse 57,977

ABG Frankfurt Holding Frankfurt 51,616

Stadt und Land Berlin 45,042

GAG Immobilien AG Cologne 44,346

GWH Immobilien Holding GmbH Frankfurt 44,011

Gesobau AG Berlin 41,933

GEWOBA AG Bremen 41,615

Wiro Rostock Rostock 35,182

Leipziger Wohnungs- und Baugesellschaft mbH Leipzig 35,038

GEWOFAG Holding München Munich 33,982

GWG Städtische Wohnungsgesellschaft München Munich 27,188

Source: Business reports of the housing companiesStatus: December 2019


subsidies to support socially deprived and/or low-income households. There are also other specifi c instruments such as occupancy controls (social housing construction), municipal housing subsidies and KfW (“Kreditanstalt für Wiederaufbau”) programs that support renovation and modernization eff orts. Particularly, the number of dwell-ings subject to occupancy controls and rental caps has re-duced signifi cantly in the last two decades from several million to just under one million. This is due to expiring social commitment clauses aft er the scheduled repay-ment of subsidized housing fi nance and the termination of most social housing programs.

Residential vacancyThe vacancy rate indicates the percentage of the housing stock that is not currently used for residential purposes. The vacancy rate can refer either to the market-active vacancy rate, i.e. dwellings that are directly and actually available to the housing market, or to the structural vacancy rate. The main diff erence is that the latter also includes properties scheduled for demolition and uninhabitable properties. The market-active vacancy rate is correspondingly lower.

The vacancy rate can be used to determine whether there is a supply or demand surplus in a market. Housing mar-kets with high vacancy rates are therefore characterized by lower price levels and low-price dynamics, while low va-cancy rates increase the bargaining power of residential landlords and higher housing prices can be imposed. As an indicator, the vacancy rate has the advantage that, unlike the price level as such, it is not additionally infl uenced by other factors such as the local purchasing power level. The vacancy rate is therefore an appropriate and important in-dicator to defi ne the market equilibrium between current demand and existing supply and to compare the market situation of regional housing markets.

Even in a balanced market, the vacancy rate is above zero due to market imperfections such as the poor transparency of information, or refurbishments between tenant change-overs. However, vacancy rates within individual residential

properties can deviate signifi cantly from the aggregated va-cancy rate of the local market, especially if the individual property stands out relatively positively or negatively from the respective housing market.

At irregular intervals, the Federal Statistical Off ice determines the vacancy rate for the housing stock in the federal states. No distinction is made between apartment buildings or owner-occupied homes. There is also no diff erentiation made between market-active vacancies and structural va-cancies.

In contrast to the vacancy rate published by the Federal Statistical Off ice, JLL’s vacancy estimate refers to the district level and exclusively to the market-active vacancy rate. ⁴ The vacancy rate for Germany in 2018 was around 3%. The lowest market-active vacancy rates of less than 1%

Vacancy rate


4,65,2

6,5

6,6

6,8

6,9

7,1

7,3

7,57,9

9,110,1

10,9

11,0

13,214,2

-4

-2

0

2

4

6

8

10

12

14

16

2014Change 2010-2014 (%-points)

%

Bade

n-W

ürtt

embe

rg

Bava

ria

Berli

n

Bran

denb

urg

Brem

en

Ham

burg

Hes

se

Mec

klen

burg

-Wes

tern

Pom

eran

ia

Low

er S

axon

y

Nor

th R

hine

-Wes

tpha

lia

Rhin

elan

d-Pa

latin

ate

Saar

land

Saxo

ny

Saxo

ny-A

nhal

t

Schl

esw

ig-H

olst

ein

Thur

ingi

a


are recorded in the economically strong large cities with their associated conurbations as well as in individual dis-tricts in the north-west and south of Germany. In structural-ly weak rural areas, but also in urban regions aff ected by structural change, the vacancy rate reaches rates of be-tween 5% and 7%. The highest vacancy rates with vacan-cies of over 10% can be observed in outlying areas of the new federal states.

Here, changes in demand meet an inelastic housing supply. The increased vacancy rate in large parts of eastern Germa-ny can thus be attributed to an oversupply of housing, caused by increased new construction activity in the mid-1990s. Aft er reunifi cation, substantial subsidies were intro-duced under the „Aufbau Ost“ program. Depreciable spending of up to 50% was approved for residential proper-ties in these federal states in order to improve the quality of the housing stock. This state intervention in regional capi-tal fl ows led to a misallocation in new housing construc-tion, resulting in an oversupply of residential real estate and sharp price declines for eastern German property. Due to the longevity of real estate, such imbalances in the mar-ket can only be reduced over a very long period of time. However, in the meantime, there have been signifi cant de-clines in vacancy rates in the eastern German states due, not only to urban redevelopment programs, but also to the substantial dismantling of residential properties that are no longer marketable. In addition, regional centres and metropolitan areas in eastern Germany have seen an in-crease in population infl ux in recent years. While some structurally weak western German regions have vacancy rates of more than 9%, very low vacancy rates of less than 2% can be observed in prospering regions of eastern Ger-many. The existing east-west distinction is increasingly changing into an urban-rural distinction.

Prices and costsRental and purchase prices in Germany continued to rise in 2019, although the rent increase was lower than in the previ-ous year. The slowdown was particularly noticeable in the metropolitan regions. In the independent cities, on in con-

trast, the decline in rental price growth was less pronounced. In the market for owner-occupied housing, prices continued to diverge from rents. In this segment, the regional diff erenc-es in the average increases in purchase prices were also much narrower.

Rental trendsThe following chart shows the indexed rental price trend according to spatial market classifi cations. The lower rental price increase in the Big 8 cities⁵ is particularly noticeable. If the rental price trend in the independent cities is added, however, the trend of increasing polarisation in the region-al housing markets in Germany will continue. Rents rose most sharply in the largest metropolitan regions, followed by the autonomous cities and regional centres, while rural regions recorded relatively small rental increases between 2013 und 2019. However, rents in the rural districts have re-cently been able to increase again at a slightly higher rate. It is precisely those regions which, despite low settlement density, can still be counted among the distant environs of the conurbations that benefi t from expanding demand. Rental prices in the Big 8 cities were able to increase by an average of + 4.1 percent in 2019 compared to the previous year. Although this increase was below the fi ve-year aver-age for 2014 - 2018 (+ 5.0%) and below the increase in the previous year (2018: + 5.1%), it was overall higher than ex-pected in mid-2019 The slight year-on-year decline in rental prices can be explained by an overall increase in new con-struction activity, albeit with regional diff erences, which provides slight relief. Increasing housing cost burdens also lead to a shift in demand to the surrounding area and thus to structural changes in supply in general. At the same time, the fl uctuation is declining in many expensive and central districts. This in turn leads to a decline in the aggre-gate off ered rents. Due to the signifi cant decrease in the potential fl oor space in city centres, this applies in particu-lar to new housing construction. In addition, the regulatory


margins for rent increases in central locations are largely exhausted and are further restricted, for example, by an in-creasing number of milieu protection areas. However, clear diff erences can also be seen between the Big 8 cities. While rents in Leipzig rose by only +1.4 percent, the average rent increase in Cologne was +8.0 percent.

Development of prices for condominium apartmentsThe purchase prices for condominium apartments rose once again in 2019 and thus continued to set themselves clearly apart from rental prices. Although the conurbations were able to achieve the strongest gains in the market for condominium apartments in the period between 2013 and 2019, the diff erences in aggregated price trends for the re-gional groups are much narrower than in rental price trends. Regional centres, medium-sized cities and the envi-rons of the conurbations in particular continue to record strong price increases.

With an average double-digit price growth of +10.2 percent year-on-year, the development of off ered purchase prices in the Big 8 cities was signifi cantly above the average fi ve-year average (2014 - 2018: +8.2%) and the previous year (2018: also + 8.2%). In view of favourable fi nancing conditions and increased yield spreads to alternative investments, condo-minium apartments remain aff ordable both for owner-occu-piers and as an investment. The highest price increases for condominium apartments were recorded in Hamburg (+11.1% to €4,900/m²), Cologne (+12.3% to €4,020/m²) and Düsseldorf (+13.3% to €4,270/m²) with signifi cant increases over the previous year (+4.3%, +2.9% and +3.9% respective-ly). Conversely, Berlin and Leipzig recorded slightly subdued growth in purchase prices. At +8.4 percent and +8.7 percent respectively compared to the previous year, the average off er purchase prices in the second half of 2019 are around €4,700/m² in Berlin and €2,260/m² in Leipzig.

Rent and sales price development (indexed)

Status: May 2020

95

105

115

125

135

145

155

165

175

185

200

195

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H1 H2H2

2012 2013 2014 2015 2016 2017 2018 2019

BIG 8: Berlin, Hamburg, Munich, Frankfurt, Düsseldorf, Cologne, Stuttgart, Leipzig Germany

Cities not subject to district restrictionsDistricts

Source: empirica systeme, JLL

Index (H1 2012=100)

* offer prices, median values weighted by local offer volume

Development of condominiums prices* Development of condominiums prices*

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H1 H2H2

2012 2013 2014 2015 2016 2017 2018 2019


Residential service chargesNet rents excluding operating and heating costs are used in the analysis of rental trends. The net cold rents do not only represent the gross income of the owner but are also the re-sult of supply and demand on the free rental housing mar-ket. Residential service charges such as heating costs, how-ever, are subject to other market infl uences and could therefore overshadow major developments in the housing market. Most of the operating costs are paid separately by the tenant, and as a result, they are a burden on the housing costs of households and not on the owner. However, these have an indirect eff ect on the aff ordability of rents and thus also on the potential scope for rent increases.The Federal Statistical Off ice shows an average share of service charges in total housing costs of approx. 37%. The cost of energy supply, including electricity and fuels for heating, is the largest housing cost item. This is followed by municipal costs and the costs for various services such as maintenance and repairs. The Federal Statistical Off ice up-dates both the share of the net rent and the composition of service charges at regular intervals. Because the individual housing cost items are characterized not only by diff erent price trends but also by signifi cant diff erences in volatili-ties, an adjustment of the composition always has an eff ect on the dynamics of the overall development of housing costs. High price fl uctuations in electricity and liquid fuels, for example, lead to a strong fl uctuation in heating costs.

With regard to service charges, two items developed signifi -cantly above the general price level in: fi rstly, the cost of electricity. With a price rise of around 4.4% year-on-year, the increase in electricity prices for private households con-tinues. In a European comparison, Germany is in a top posi-tion in terms of electricity prices. At around 4.1% year-on-year, prices for maintenance and repair services also rose signifi cantly. This can be explained by the tense situation in the labour market, especially amongst skilled workers in

the construction industry and craft enterprises, and by the rise in construction costs. Aft er an increase of almost 17% in liquid fuels last year, the fi rst quarter of 2020 saw a de-cline of -7.3% year-on-year. These strong fl uctuations show the high volatility of fuel prices and thus their importance for the volatility of ancillary residential costs.

Legal frameworkDue to the dynamics of the housing markets and the persistent public demand for more aff ordable hous-ing, especially in the major cities of the Federal Republic of Germany, housing policy activity on the part of the federal government, the federal states and local gov-ernments remains high in addition to the expanded investment activity on the buyer side. In 2019, a large number of changes to the legal framework came into force or planned draft legislation was presented.¹

As early as the beginning of 2019, the German Tenancy Law Adjustment Act (“Mietrechtsanpassungsgesetz”) on the rental cap and modernization levy came into force at the federal level, making it easier for tenants to report and enforce infringements of the rental cap regulations This includes, for example, an obligation on the part of landlords to provide information on the amount of rent paid by the previous tenant. However, this change in the law is accompanied by a reduction in the modernization costs that can be passed onto the tenant. An expansion of new housing construction aimed at aff ordable rental space is also to be stimulated by housing policy measures. By means of the special depreciation, the legislator plans to create tax incentives to expand the construction of new rental apartments. This stipulates that building applica-


Composition of ancillary housing costs

tions submitted between August 2018 and the end of 2021 can be written off against tax over 50 years at a rate of 2% of the building costs. However, this has so far been pro-vided exclusively for affordable housing but includes not only new construction but also the addition of storeys and/or conversion of attics and the conversion of commercial space into residential space. Amendments to the legisla-tion in the field of social housing were also introduced in 2019. The federal government will continue to support the federal states with funds for social housing construc-tion. However, a constitutional amendment requires these funds to be supplemented by funds provided by the federal states. In addition, the federal government retains the right to control the use of these funds. A surprising de-velopment, however, is that the reform of the regulations for „share deals“ was postponed by the Federal Cabinet until the end of 2019 in order to examine this reform more

thoroughly. Originally, a reduction in real estate transfer tax was planned which was intended to tighten up the cur-rent „share deals“ regulation. On the one hand, this will affect a change of the threshold above which no real estate transfer tax is payable (previously 95%) and on the other, affect the statutory time limit from which the new owner can purchase the remaining shares tax-free (previously 5 years In addition, the draft bill on the reform of real estate tax, which was prepared by the Ministry of Finance, as well as the associated amendments to the German constitution were passed by the German Bundestag. The legislator thus fulfilled the requirement of the Federal Constitutional Court to submit corresponding plans for a real estate tax reform by the end of 2019. The German Bundesrat has already ap-proved the planned reforms, which include a so-called „ state-opening clause“, which leaves it up to the individual federal states to decide whether to use their own methods

Source: Statistisches Bundesamt, JLL

Electricity 8.28%

Gas7.96%

Other services for the apartment5.73%

Maintenance and repair services 2.23%

Water supply2.23%

Liquid fuels3.82%

Refuse collection1.91%

Solis fuels 0.32%

Wastewater disposal1.91%

Central heating, district heating1.59%

Products for maintenance1.59%


Change in housing costs (Q1 2020)


1.51.6

4.1

1.82.73.0

-7.3-2.7

4.4

1.21.20.4

-4

-2

0

-8

-6

2

4

6

8

Apar

tmen

t ren

t

Prod

ucts

for m

aint

enan

ce

Mai

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ance

and

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Refu

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Oth

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apa

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ent

Gas

Liqu

id fu

els

Solis

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Elec

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ity

Cent

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Wat

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Was

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dis

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Change compared to prior-year quarter (in %)

of calculating property tax or to implement the proposals of the Federal Ministry of Finance. The reform is to be im-plemented with legal eff ect by 2025 and will then probably show greater diff erences between the individual states.

Housing investment marketIn the following analysis, sales of housing packages and student residences with at least 10 residential units and 75% residential use as well as the sale of company shares without IPOs are included in the commercial housing in-vestment market. In the fi rst case, the apartments are transferred directly to a new owner. The usual structuring in the industry for this type of sale is the so-called „asset deal. The second case relates to the sale of a company, in which the company shares are sold. In other words, the buyer not only takes over the housing stock, but rather ownership of part or even the entire company is transferred

to the buyer. The structuring usually takes the form of a „share deal“. Finally, project developments can also be sold to end investors before their completion. These sales are particularly important in tense housing markets such as Munich, Hamburg or Frankfurt, since in most cases, they are the only way to gain access to these markets.

The German housing market closed 2019 with a remarka-ble result. With a transaction volume of around €20 billion for residential properties and portfolios, it exceeded the volume of the previous year (+ 7%) as well as the 5- and 10-year averages (by +16% and +56% respectively). Hence, an increase was registered for the fourth year in a row. In 2019, a total of approx. 130,500 residential units changed hands, roughly the same number as in the previous year. The in-crease in the transaction volume can therefore be attribut-ed exclusively to a price increase: currently, residential in-vestments cost around €153,300 per unit or €2,300 per m², almost 8% more than in the previous year.

As a result of the high institutional demand on the one hand and the high level of legal uncertainty due to political discussions regarding, for example, rent cap or expropria-tion on the other, there were major portfolio reallocations in 2019This led to an accelerated momentum on the trans-action market. These developments are also refl ected in the analysis of the expansion and reduction of residential property assets. Municipal, non-profi t housing companies in particular have increasingly appeared on the buyer side in the last half of 2019. Public pressure for more state inter-vention in the German housing market led local authorities to signifi cantly expand their activities in the housing mar-ket. Throughout 2019, municipal housing companies in-creased their investment by almost 100% year-on-year to a total of €2.4 billion. In this context, one of the largest trans-actions in the fourth quarter of 2019, the sale of a Berlin residential portfolio of around 2,180 apartments from Deutsche Wohnen to municipal Degewo, is particularly noteworthy.

The fi rst quarter of 2020 also closed with a very dynamic development. A major deal boosted the German commer-cial housing market to a transaction volume of €9.7 billion and 78,800 residential units in the fi rst quarter of 2020. With the acquisition of Adler Real Estate by the Israeli company Ado Properties S.A., which was announced last year and


Climate in the residential real estate marketTransaction Market Residential Properties and Portfolios*

has now been completed, another major residential mar-ket player has been formed with national operations. After recording the weakest quarter to date in the IW Real Es-tate Index in the third quarter of 2019 at 71.9 points, the Ger-man housing market sentiment has recently (Q3 2019 - Q1 2020) also shown an upward trend again. This marked a breakthrough in a continuous downward trend that persist-ed since the peak value in Q2 2018 (89.4 points). This devel-opment can also be observed in the real estate climate as well and in the expectations of the players, which on average were back in positive territory for the first time in Q1 2020.

And the first half of 2020 also closed with a very dynamic development. For the first half of 2020, the cumulative transaction result was EUR 13.4 billion (106,900 residential units), corresponding to an increase of + 65 percent com-pared to the previous year. Following a strong start to the year on the German commercial residential investment market, boosted in particular by the takeover of Adler Real Estate by Ado Properties and an overall high number of transactions, the second quarter saw a significantly lower

transaction volume, as expected. A total of EUR 3.7 billion between April and the end of June stood in contrast to EUR 9.7 billion in the first quarter.

Although the first signs of negative effects with capacity bottlenecks and organizational restrictions had already emerged in March due to Covid-19, there was at no point in time a sign of a collapse in the market. Fears of massive losses turned out to be unfounded, as the temporary con-siderable decline in transaction activity at the beginning of the crisis was not so much due to an actual drop in de-mand as linked to restrictions in the execution of transac-tions. There were restrictions, for example, not only in the execution of inspections, but also due to bottlenecks in the processing of financing applications or the limited notarial capacity to act. The housing investment market was again characterized by remarkable dynamics in the months from April to the end of June, with the number of transactions realized remaining high during this period, at 114, on a par with the previous quarter. Almost half of all transactions took place in June, a clear indication of the regained confi-

Status: May 2020

*incl. pre-sold project developments and student residences

Source: JLL

0

2

4

6

8

10

12

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1Q4Q3

2014 2015 2016 2017 2018 2019 20

Transaction volume in € billion Mean (2014 Q4-2019 Q4): 4,6 billion Euro

Transaction volume in € bn

Status: May 2020Source: IW Köln, Immoscout24

ZIA-IW Real Estate Sentiment Index

0

20

-20

40

60

80

100

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2015 2016 2017 2018 2019 2020

SituationExpectationsClimate


dence of market participants. With its defensive risk profile and the characteristics of the consumer good ‚housing‘, which is subject to state protection for basic needs, the as-set class was able to convincingly convey the confidence that is psychologically crucial in a critical and uncertain market situation. Demand in the residential real estate in-vestment market has thus remained stable, not least be-cause the asset class has lived up to its reputation of stable cash flows.

Residential investment was once again able to attract at-tention, and not only because of their stable performance. The immediate impact of the Covid-19 crisis on the labour market and the relevance of the housing topic also brought the asset class increasingly into the spotlight. The in-creased use of home office has also given greater impor-tance to the quality of living. This is because the partial lock-down in the wake of the Covid 19 pandemic has indi-rectly led to a greater awareness of certain physical apart-ment characteristics. The desire for own outdoor and green spaces and more living space has increased. Changes that have also increasingly directed the attention of investors from other asset classes to the residential segment.

The declining attractiveness of bonds in the wake of the emergency purchase programmes of the ECB could, how-ever, increase the demand for real assets in the medium and long term. While risk-averse investors, such as Ger-man insurance companies and pension funds, have tend-ed to increase their share of real estate investments in re-cent years, a further increase in demand from institutional investors is possible in this market situation. In particular residential properties, which are considered a very defen-sive asset class due to their very stable cash flows and thus fit the risk profile of this rather risk-averse investor group, could experience a significant increase in demand again in the course of the year. Moreover, if this asset class proves to be more resilient in the course of this crisis, it would further intensify the shifts in demand and could

also attract more liquid private investors again. However, the final impact on the development of the transaction process will largely depend on the duration of the period of uncertainty and the extent to which political measures can cushion the economic slowdown, especially on the part of private households and companies. All in all, no long-term changes are to be expected for the risk profile of the residential asset class, which is considered to be very defensive, since „ housing“, as a consumer good, rep-resents a basic need and is therefore very consistent in its inherent characteristics.


Sources

¹ The economic forecast („Gemeinschaftsdiagnose“) is prepared by the following institutes: German Institute for Economic Research (DIW Ber-lin), Leibniz Institute for Economic Research Halle, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, Kiel Institute for the World Economy, RWI - Leibniz Institute for Economic Research

² The Bank Lending Survey questions banks on the granting of loans. The result is the balance of the sum of the values „significantly tightened“ and „slightly tightened“ („significantly widened“ and „slightly wide-ned“) and the sum of the values „slightly loosened“ and „significantly loosened“ („slightly narrowed“ and „significantly narrowed“) in % of the answers given. See also the Deutsche Bundesbank.

³ In comparison: 787,000 children were born alive in 2018, compared to s total of 954,000 deaths.

⁴ Reliable annual statistics on vacancies are not collected by the official authorities and so various sources are used in this report for the analysis of vacancies: a survey of vacancies by the Bundesverband deutscher Wohnungs- und Immobilienunternehmen (GdW), the Federal Statistical Office‘s vacancy survey and finally a vacancy estimate by JLL based on local market reports, valuation mandates and expert opinions.

⁵ The Big 8 cities group consists of the cities: Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Düsseldorf, Stuttgart and Leipzig.

⁶ The overview of legal framework conditions presented here is neither complete, nor does it constitute legal advice.

Contacts

Helge ScheunemannHead of Research Germany+49 (0)40 350011 225 [email protected]

Dr. Konstantin KortmannHead of Residential InvestmentGermany, Member of the JLL Strategy Board Germanytel +49 (0) 69 2003 [email protected]

Ralf KemperHead of Valuation & TransactionAdvisory Germany, Member of the JLL Strategy Board Germanytel +49 (0) 69 2003 [email protected]

AuthorDr. Sören GröbelDirector Research+49 (0) 40 350011 325 [email protected]

Sebastian GrimmLead Director Residential Valuation& Transaction Advisorytel +49 (0) 69 2003 [email protected]

Roman HeidrichLead Director Residential Valuation& Transaction Advisorytel +49 (0) 30 203980 [email protected]

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No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

jll.de Information regarding JLL and our servicesjll.de/research All research reports on current market figures and special topicsjll.de/immo Commercial real estate properties for sale or to let throughout Germany

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