vdp property price index: Price increase for residential and office properties

Berlin, February 10, 2022

vdp property price index reaches new high

Property prices in Germany rose by 8.4% year-on-year in the closing quarter of 2021. The property price index published by the Association of German Pfandbrief Banks (vdp) reached a new record high of 187.4 points (base year 2010 = 100 points). The index is based on vdpResearch’s quarterly evaluation of actual property transaction data from more than 700 credit institutions.

While residential property prices once again showed a significant increase nationwide (10.7% year-on-year), commercial property prices were up slightly again (by 0.3%) for the first time since the end of 2020. This trend was driven by office property prices, which climbed by 2.1% in the final quarter of 2021. Retail property prices, on the other hand, slipped by 4.1% as the trend witnessed in recent quarters continued.

“The impact of the sharp increase in construction prices also has to be taken into account when assessing the rising property prices.”
Jens Tolckmitt

“The COVID-19 pandemic did not stand in the way of the ongoing price increase in the German property market. On the contrary: prices continued to rise, particularly for residential properties, but also for commercial properties for what was the first time in a year. The office property market has recently bounced back considerably”, emphasised vdp Chief Executive Jens Tolckmitt. Alongside the continued strong demand for residential property, which is attributed to the sustained low interest rate environment, Tolckmitt pointed out that the marked increase in construction prices in 2021, which makes construction measures more expensive, also plays a significant role in this development. What is more, Tolckmitt notes that the dynamic development in construction prices due to supply bottlenecks and limited construction capacities poses a considerable challenge to the German government’s objective of building 400,000 new homes a year, 100,000 of them in the social housing segment.

Overview of changes in prices from Q4 2020 to Q4 2021:

Residential/commercial properties overall: +8.4%    
Residential properties in Germany: +10.7%    
Residential properties in the top 7 cities: +10.2%    

Commercial properties: +0.3%
- Office properties: +2.1%
- Retail properties: -4.1%

Greatest demand for owner-occupied housing

Residential properties in Germany remained highly sought after at the end of 2021. The price increase of 10.7% compared to the fourth quarter of 2020 comprised the increase in the price of owner-occupied housing (+12.4%) and the price increase for multi-family houses (+9.1%). Rents under new contracts increased by 3.3%. Consequently, the cap rate fell by 5.3%.

Berlin with the most pronounced price increase among the top 7 cities

The increase in prices seen in the top 7 cities was somewhat lower than in Germany as a whole, with residential property prices in these markets rising by an average of 10.2% in the fourth quarter of 2021 compared to the end of 2020. Berlin, Cologne and Munich reported the most pronounced price increases at 11.1%, 10.9% and 10.8% respectively, followed by Hamburg (+9.4%) and Stuttgart (+9.0%). Price growth in Düsseldorf and Frankfurt was slightly lower at 8.6% and 8.0% respectively.

Index values for office and retail properties move in different directions

The different trends seen in the two commercial property segments, office and retail, in the closing quarter of 2021 were not restricted to prices. The index for rents under new contracts fell by 2.5% year-on-year for retail properties, whereas it increased by 0.3% for office properties. The property index for office properties fell accordingly by 1.8%, with the index for retail properties rising by 1.7%.

Outlook: “Price trend to flatten out”

Looking ahead to the next few years, Tolckmitt expects the current trend to continue for the time being: “While property prices will continue to rise, we expect the price momentum to level off in the medium term. After all, interest rates have clearly bottomed out, and rents cannot keep increasing forever either.”