German population boom boosts investment appeal

Germany’s population is at an all-time high, and that boom in households continues to boost the real estate market’s safe haven appeal to investors.

82.8 million people are now living in Germany, the Federal Statistical Office estimates, up a whopping 300,000 from the previous year. With net migration of 750,000 people, the need for housing keeps on climbing.

Indeed, the country is racing to build enough homes to match demand, but while the population has steadily grown since 2012, new-build activity is still falling short. Annual housing completions surged to 250,000 in 2016, up 35 per cent from 2011, while building permits also rose 37 per cent across the same period to 310,000. Even with this recent acceleration in activity, though, construction levels are still insufficient, with the number of households jumping by almost 1.5 million in the last six years – 0.4 per cent higher than the number of new homes built.

Vacancy rates are just 0.5 per cent in cities such as Munich and Frankfurt, notes Savills’ research, while the capital Berlin remains a hotspot for landlords, thanks to the shortfall in supply – the city added just 28,000 new residential units last year, compared with approximately 132,000 additional households. This is in spite of a rental cap introduced recently in an attempt to keep the private rented sector affordable for tenants.

“The fundamentals on the residential market remain favourable for investors. However, the main topic of the year will be the political conditions,” Karsten Nemecek, Savills Corporate Finance – Valuation.

Indeed, as the UK prepares to trigger Article 50 on 29th March, President Donald Trump creates worldwide uncertainty in the USA and the Netherlands and France both face elections, the shifting political landscape may be a factor for many investors. Nonetheless, the stability of Germany’s residential real estate is only likely to fuel more interest from investors looking for a safe haven.

According to Savills, investment deals completed last year totalled around €12.1 billion, although this was down 54 per cent compared to 2015, because of fewer large portfolios available to purchase. The resurgent new-build sector, though, is expected to expand the number of opportunities in the year ahead.

“The risk, that rent increases for existing properties will be more restricted, is growing. Purchases of project developments will become even more attractive,” comments Matthias Pink, Savills Research.

Indeed, new-build is exempt from regulations such as the rental cap, which means that significantly higher rents can be achieved for investors.

Foreign interest in German real estate has been steady in the last year, with the country appearing in’s Top 10 most popular destinations in seven out of the last 12 months.

Read: Berlin’s property boom: By numbers