vdp property price index: Property prices end 2023 down 7.2%

Berlin, February 12, 2024

  • vdp index shows 6.1% decline in residential property prices

Price adjustments in the German property market continued in the fourth quarter of 2023. Property prices were down by an average of 7.2% compared with the final quarter of 2022, and by 2.2% versus the previous quarter of 2023. The property price index of the Association of German Pfandbrief Banks (vdp) stands at 175.2 points (base year 2010 = 100 points), which is 10.0% below its high of the second quarter of 2022 (194.8 points). The vdp index has been compiled by vdpResearch every quarter since 2010 and, unlike other property market indices, is based on an evaluation of actual property transaction data from over 700 credit institutions, providing price coverage of the entire German market for residential and commercial property quarter by quarter.

Residential property prices fell by 6.1% year on year in the fourth quarter of 2023 (Q4 2023 vs Q4 2022), and by 1.6% quarter on quarter (Q4 2023 vs Q3 2023). Compared with the peak of the second quarter of 2022, prices for residential property in Germany have fallen by a total of 8.4% after having more than doubled within the preceding twelve years.

Commercial property prices declined by 12.1% year on year, and by 4.9% quarter on quarter in the final quarter of 2023, both of which are the largest price drops ever recorded in the vdp index for commercial property. This represents a decline of 16.5% since the prices reached their high in the second quarter of 2022, following an increase of around 55% between 2010 and 2022.

“A trend reversal is not yet in sight for property prices.”
Jens Tolckmitt

“2023 was a difficult year for the property sector, as we can see from price developments. There was no sign of recovery in the fourth quarter either,” said vdp Chief Executive Jens Tolckmitt. “A trend reversal is not yet in sight for property prices, despite frequent public speculation. The situation will remain difficult for the time being in 2024.”


Residential property: rent and returns rise significantly

While residential property prices declined by a uniform 1.6% compared to the previous quarter, there were slight differences between types of property in the year-on-year comparison. Owner-occupied housing – comprising both single-family houses and flats – saw a decline of 5.8% as against the prior-year quarter, whereas multi-family property prices fell somewhat further, by 6.3%. Combined, these figures produce an overall price drop of 6.1% for residential property.

At 5.8%, the annual rates of change in rent under new contracts in multi-family properties remained unchanged from the preceding quarter. Returns surged further, by 12.9%, as measured against the vdp cap rate index, although not quite as strongly as in the third quarter of 2023 (+13.5%).

“The housing shortage will get worse.”
Jens Tolckmitt

“The trend in rents shows that housing remains in very short supply, particularly in urban areas. Given the declining number of new homes being built, we can expect the housing shortage to get even worse in the coming years, resulting in rents climbing further still. It is therefore vital that the measures resolved by the Alliance for Affordable Housing (Bündnis bezahlbarer Wohnraum) be implemented quickly – along with other action too,” said Tolckmitt.


Top 7: largest rent increase in Berlin

Residential property prices proved somewhat more resilient in the top 7 cities than in the country as a whole. Prices in Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich and Stuttgart fell by an average 5.1% year on year, compared to the 6.1% drop at national level. The sharpest declines were in Munich and Frankfurt, at 6.3% and 6.1%, respectively, and the smallest in Cologne and Düsseldorf (4.4% and 4.8%). Quarter-on-quarter price drops ranged between 1.0% (Cologne) and 2.3% (Munich) in the fourth quarter of 2023.

Berlin saw the largest increase among the major cities, both in rent under new contracts in multi-family properties (6.7%) and in returns (12.5%), and Hamburg saw the lowest (3.3% and 9.0%). The average increase in rents in the top 7 cities was 5.4%, and in returns 11.1%.


Commercial property: retail properties see biggest plus in rents

Price corrections in the commercial property market (-12.1% year on year and -4.9% quarter on quarter) far exceeded those of the residential property market once again in the fourth quarter of 2023. This was largely attributable to developments in office property prices, which fell by 5.2% quarter on quarter and 13.3% year on year. Price drops for retail properties were somewhat less pronounced at 9.0% and 3.9%, although this segment has been experiencing a downtrend for considerably longer than the office property segment.

The increase in returns and rent under new contracts as measured against the vdp cap rate index had a stabilising effect on the market. Returns on office properties rose by 17.5% year on year in the final quarter of 2023. Office rents also increased (+1.9%), albeit not as much as in the preceding quarters.

Retail rent under new contracts recorded a year-on-year increase for the first time since the third quarter of 2019, which, at 2.5%, was also a new record. There has been no major growth in rent under new contracts for retail properties since the vdp index was launched in 2003, which can be attributed to high investor demand. Returns on retail properties also saw by far their largest increase in the history of the vdp index in the fourth quarter of 2023, of 12.7%. This broke the previous record of 9.5% from the second quarter of 2023 by a long distance.

“Muted demand is putting pressure on office property prices.”
Jens Tolckmitt

“The property crisis is affecting the commercial segment more than the residential segment. The spotlight is currently on office properties, as their returns have thus far generally failed to meet investors’ expectations. On top of this, demand for offices remains subdued due to the uncertain economic growth in Germany and the still unclear impact of the working from home trend on office space needed. So prices continue to depress. Retail properties, on the other hand, are much further along in the cycle, as evidenced by the first increase in rent under new contracts for more than four years,” said Tolckmitt.


Outlook for 2024: “No new price balance as yet”

Asked for his forecast for this year in property, Tolckmitt said, “The property market remains in a downturn as we start 2024, and prices continue to drop. It will be some time before property buyers and sellers reach a new price balance, and only then will we see a noticeable recovery in the market.”

“Downward trends will likely ease considerably as the year goes on.”
Jens Tolckmitt

According to Tolckmitt, prices can be expected to stabilise in the residential property market by the summer, but not before the end of the year in the commercial segment. “As things currently stand, 2024 can be expected to be a challenging year for the property market overall, although the downward trends that started in mid-2022 will likely ease considerably as the year goes on.” This is indicated by the stabilising interest rates, increasing returns and continued growth in rents, which are making property investments more attractive again.