anticipated to pose challenges once more for renters in 2025
anticipated to pose challenges once more for renters in 2025
Rent hikes have become the norm - and experts anticipate them to persist in the coming year. The outlook on purchase costs, however, appears somewhat hopeful. The forecast for new housing construction, regrettably, takes a gloomy turn.
Real estate analysts share the expectation for substantial rent increases in urban areas next year. This is due to persistent demand for housing in Germany, coupled with a deficit of new housing units. The experts predict moderate price adjustments in purchase costs post the recent correction.
Søren Griebel, Research Director for Residential Real Estate at Jones Lang LaSalle (JLL), foresees that significant new construction growth will likely not materialize before 2025. Griebel explains that despite widespread interest in building new homes, construction costs for labor and materials remain high, and the recent interest rate reduction is not sufficient to cover the substantial construction and land expenses. Consequently, housing shortages and competition will persist, especially in cities, ultimately impacting rents.
Michael Schlatterer, Managing Director at real estate service provider CBRE, shares this outlook. Scarcity of housing remains an issue in Germany, further complicated by insolvencies within the construction sector and immigration.
Steep rent hikes in Q3
JLL data reveals substantial rent hikes, even in rural areas, during the third quarter. Rents in major metropolitan areas and other prominent cities rose by approximately 8% compared to the previous year, followed by cities serving as regional hubs (additionally increasing by around 4.5%). Rents also rose by approximately 4% in other urban areas and rural regions. Griebel observes that recent rent increases surpassed those of the earlier real estate boom, continuing until 2022.
However, the picture for purchase costs looks different. JLL anticipates minor increases in most regions during the third quarter, closely resembling reports from the Federal Statistical Office. "The real estate market is gradually regaining momentum, but purchasing or building remains financially challenging for many," says Griebel.
Although reduced construction interest rates can make real estate loans more affordable, analysts Peter Richter at Landesbank Helaba cautions against overestimating their impact on property prices. Furthermore, Ulrich Kater, chief economist at Dekabank, notes that the downside potential for construction interest rates is now limited.
A potential decline in new construction
Industry reports suggest that the residential construction sector might continue its downward trajectory. Tim-Oliver Müller, the main managing director of the industry association HDB, asserts that Germany is facing a housing market crisis, with minimal new housing permits submitted over the past two years. Müller predicts that around 200,000 apartments will be completed, with some rumors even suggesting only 150,000.
Müller calls for a "drastic change of course" in housing policy and a "clear commitment to building in Germany" from the upcoming federal government. In this context, Müller proposes merging the federal ministries of construction and climate protection, arguing that only under this unified system will affordable, effective solutions be developed.
The steep rent hikes in Q3 have significantly impacted numerous regions, including rural areas, where rents increased by approximately 4%. As for purchase costs, Griebel predicts moderate price adjustments following the recent correction.
Despite the reduced construction interest rates, making real estate loans more affordable, Ulrich Kater points out that the downside potential for construction interest rates is now limited, potentially leading to a potential decline in new construction.