vdp property price index: So far, pandemic has not managed to stop the increase in residential property prices

Berlin, 10 November 2020

vdp property price index increases by 6.1% to new high

The property price index published by the Association of German Pfandbrief Banks (vdp) increased to a new record high of 169.6 points in the third quarter of 2020 (base year 2010 = 100 points). Year on year, the index, which is calculated for the German market as a whole based on real transaction data, rose 6.1%. Compared with the first quarter of 2020, which was largely unaffected by the Covid-19 pandemic, the index increased by 2.7%, reflecting the continuing positive trend in residential property prices.

“Overall, the Covid-19 pandemic so far has been unable to stop the upward trend in property prices that has persisted over the past 10.5 years,” said Jens Tolckmitt, vdp’s Chief Executive, summing up current results. He pointed out that there were significant differences among individual property classes. “While residential property prices continue to increase, price momentum for commercial properties has come to a standstill. The restrictions on public life associated with the pandemic have primarily affected the cultural sector and the hotel, restaurant and retail industries – with corresponding dampening effects on commercial property prices. Against this backdrop, we expect the gap between the trends in residential and commercial property prices to widen even further in the fourth quarter of 2020.”

Overview of change in prices from Q3 2019 to Q3 2020:

Residential/commercial properties overall: +6.1%

Residential properties in Germany: +7.1%

Residential properties in the top 7 cities: +3.8%

Commercial properties: +2.6%
- Office properties: +4.7%
- Retail properties: - 2.2%

Continuous increase in residential property prices

The increase in residential property prices persisted, unchanged, in past quarters: compared to the third quarter of 2019, prices throughout Germany increased by 7.1% on average. Growth rates still amount to 3.4% (Q1 2020) and 2.3% (Q2 2020), respectively, since the start of the pandemic. The increase in the third quarter is therefore higher than in the second quarter.

This trend was driven both by owner-occupied housing and by multi-family houses with year-on-year increases of 7.3% and 7.0%, respectively, in the third quarter of 2020. Over the same period, rents under new contracts increased by 3.4%.

Price increases in top 7 cities below nationwide average

Once again, residential price increases in the top 7 cities (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart) were significantly lower than for Germany as a whole – a trend that was already visible before the pandemic. Over the past twelve months, residential prices in the major cities have increased by 3.8%. Since the beginning of the pandemic, prices have increased by 2.3% (Q1 2020) and 1.7% (Q2 2020), respectively.

The 5.2% increase in prices of owner-occupied housing in the top 7 cities exceeded the rate of increase in prices of multi-family houses (3.5%), in both cases compared to the third quarter of 2019. Rents under new contracts rose 1.8% during the same period.

“Even during the pandemic, the residential property market is proving to be extremely robust,” Tolckmitt stressed. “The inability of price momentum in major cities to keep up with nationwide price changes is a trend that has persisted for some time. It is attributable to the fact that prices are already at a high level and to migration to surrounding areas, as well as to regulatory interventions such as the rent cap.”

Prices of office properties cancel out pandemic-related decline

In Germany as a whole, prices of commercial properties in the third quarter of 2020 were 2.6% higher than in the autumn of 2019. However, the two property classes analysed followed completely different trends: prices of office properties rose by 4.7% compared with the prior-year quarter. In contrast, prices of retail properties decreased by 2.2%.

While the trend towards lower retail property prices has been visible since the end of 2018, the increase in prices for office space that has persisted for many years clearly has stalled since the start of the Covid-19 pandemic. Compared to the first quarter of 2020, prices have remained constant. Indeed, the slight decrease in the second quarter of 2020 immediately after the beginning of the pandemic (-0.3%) has already been offset in the third quarter.

“This year’s price trend demonstrates how stable the office property market is, even during the current economic crisis, and how quickly short-term price decreases can be offset,” stated Tolckmitt. “However, the longer the pandemic lasts, the more likely it is that it will also be reflected in the price trend. Nevertheless, we are still not expecting any drastic downturn in prices.”