vdp property price index: Momentum in property price trend flattened slightly

Berlin, 10 August 2020

vdp property price index rose 5.5% in the second quarter of 2020

Compared to the second quarter of 2019, the property price index published by the Association of German Pfandbrief Banks (vdp) increased by 5.5% and now stands at 166.4 points. Despite this new record high, the first signs of the impact of the COVID-19 crisis on the German real estate market are becoming clear. The index for residential properties, which is based on actual transaction data for the German market as a whole, rose 6.0% in the second quarter of 2020 (Q1 2020: 6.5%), while the index for commercial properties increased by 3.9% (Q1 2020: 5.4%).

“Although prices for residential and commercial properties continue their upward trend,” noted Jens Tolckmitt, CEO of vdp, “the slowdown in momentum seen during recent quarters also continues.”

He explained that the impact of COVID-19 on sub-markets varies. While prices for residential properties continued to climb, transaction data for commercial properties in the second quarter were mixed, depending on the specific types of property: prices for office properties increased by a further 6.3% (Q1 2020: 8.4%), whereas prices for retail properties decreased by a further -1.3% (Q1 2020: -1.1%).

“So far, the real estate market continues to be quite robust”, said Tolckmitt. “A massive drop in prices, which has been predicted from time to time, so far has not materialised, despite the dramatic -10.1% drop in the German economy in the second quarter of 2020 caused by the pandemic. Of course, it remains to be seen how the continuing pandemic will affect the economy and private households’ income situation. That will also determine how property prices will trend in the second half of the year and in subsequent years.”

Overview of price trends in the second quarter of 2020:

Residential/commercial properties overall: +5.5%       
Residential properties in Germany: +6.0%         
Residential properties in the top 7 cities: +2.8%
Commercial properties: +3.9%
- Office properties: +6.3%
- Retail properties: -1.3%

As in previous quarters, increases in prices for residential properties also exceeded increases in prices for commercial properties in the second quarter of 2020. For example, across Germany, residential property prices increased by 6.0% on average. This trend was driven both by prices for owner-occupied housing and by prices for multi-family housing, which increased by 6.8% and 5.2%, respectively. The increase in rents under new contracts amounted to 3.1%.

Significantly lower price momentum in top 7 cities

In the top 7 cities of Berlin, Duesseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart, momentum continues to flatten. During the second quarter of 2020, increases in prices for residential properties in metropolitan areas were again significantly lower than for Germany as a whole. The 4.6% increase in prices for owner-occupied housing played a disproportionate role in the 2.8% overall increase, while prices for multi-family homes only increased by 2.3%. In the top 7 cities, rents under new contracts increased by 1.6% over the level in the prior-year quarter.

Prices for retail properties continue to decline

The trend in prices for commercial properties slowed in the second quarter of 2020, increasing by 3.9%. Prices for office properties even increased by 6.3%. By contrast, prices for retail properties decreased by -1.3%. For this type of property, the pandemic appears to be reinforcing the structural change in favour of online commerce that was already visible beforehand. Consequently, rents under new contracts for retail space also decreased by 1.8% year on year.