vdp property price index: Indication that property price trends are changing

Berlin, November 10, 2022

vdp property price index up year on year, but down slightly compared to previous quarter

The property price index of the Association of German Pfandbrief Banks (vdp) indicates that property market trends are changing. Although property prices in Germany were 4.7% higher in the third quarter of 2022 than they were in the third quarter of 2021, they fell by 1.0% compared to the second quarter of 2022. The vdp index now stands at 192.8 points (base year 2010 = 100 points) after its first fall since 2011. The index is based on vdpResearch’s quarterly evaluation of actual property transaction data from more than 700 credit institutions.

Residential property prices in Germany went up by 6.1% year on year (comparing Q3 2022 to Q3 2021), while commercial property prices fell by 0.6%. This decline was driven by retail property prices, which fell by 5.8% over the course of the year. In contrast, office property prices rose by 1.4% over the same period.

The quarter-on-quarter trend (comparing Q3 2022 to Q2 2022) shows a different picture, as both residential property prices (-0.7%) and commercial property prices (-2.2%) went down over the course of this period. Office property prices (-1.6%) fell less sharply than retail property prices (-3.9%).

“The upward trend in residential property prices that has continued for years is over.” 
Jens Tolckmitt

“The many factors that have had a negative impact on the wider economy and therefore also the property market – like the rise in interest and inflation rates, downturns in the real income of potential buyers and ongoing political and economic uncertainty – are starting to be reflected in the vdp index. After rising for more than twelve years straight, residential property prices have gone down slightly for the first time since then. The long-standing upward trend in residential property prices is over,” explained vdp Chief Executive Officer Jens Tolckmitt. However, he added: “The property market in Germany has always proved robust in challenging times. We expect this to remain the case now.”

Year-on-year change in prices (Q3 2022 compared to Q3 2021):

Residential/commercial properties overall: +4.7%         
Residential properties in Germany: +6.1%         
Residential properties in top 7 cities: +6.1%       

Commercial properties: -0.6%
 - Office properties: +1.4%
- Retail properties: -5.8%

Quarter-on-quarter change in prices (Q3 2022 compared to Q2 2022):

Residential/commercial properties overall: -1.0%        
Residential properties in Germany: -0.7%       
Residential properties in top 7 cities: -0.7%       

Commercial properties: -2.2%
- Office properties:   -1.6%
- Retail properties:   -3.9%

Prices for owner-occupied housing continue to rise

The 6.1% increase in residential property prices year on year was driven by an upward trend in the prices of both owner-occupied housing (+8.3%) and multi-family houses (+4.1%). When compared to the second quarter of 2022, however, the prices of owner-occupied housing grew slightly (+0.5%), while the prices of multi-family houses fell by 1.9%.

Cap rates went up both year on year (+0.6%) and quarter on quarter (+3.6%). Rents under new contracts also went up – by 1.6% compared to the previous quarter and by 4.8% compared to the third quarter of 2021. Demand for rental apartments remains high, while the supply of affordable housing remains low due to factors like the downturn in new construction and refugees fleeing from the war in Ukraine. “Demand is also being driven by people who would otherwise be in the market as potential buyers, but for whom the dream of home ownership is out of reach for now due to inflation and the upturn in interest rates,” explained Tolckmitt.  

Berlin stands out among the top 7 cities

Residential property prices in the top 7 cities went up by 6.1% compared to the same quarter in 2021, on a par with the wider national trend. However, prices for residential property in the biggest cities fell by 0.7% relative to the second quarter of this year. Of the top 7 cities, Berlin recorded by far the most positive development, with prices climbing 7.5% year on year and remaining practically stable compared to the previous quarter (-0.1%). In the six other cities on the top 7 list, prices fell by between 0.6% (Cologne) and 1.5% (Munich) quarter on quarter. However, all six posted price increases in a year-on-year comparison, ranging from 3.7% in Frankfurt to 5.6% in Hamburg. 

Rents for office and retail properties move in different directions

The diverging trend in the two commercial property segments – office and retail – that has been apparent for some time continued to some extent in the third quarter of 2022. While rents under new contracts for office properties continued to rise (+4.9% year on year / +1.9% quarter on quarter), the downward trend in rents for retail property remained in effect (-3.1% / -2.0%). Cap rates, on the other hand, went up for both office properties (+3.4% / +3.6%) and retail properties (+2.8% / +2.0%).

Outlook: “We anticipate further moderate downturns”

Tolckmitt had this to say about future price trends: “At the end of 2022, residential property prices may well be higher than they were at the end of 2021, due to the significant price increases over the first six months. However, we expect to see a different picture quarter on quarter. The current trend is likely to continue, i.e. we anticipate further moderate downturns in the prices of residential property. We do not expect prices to collapse, however, due to the ongoing healthy demand for housing.”