vdp property price index: Upswing in office property prices

Berlin, November 10, 2021

vdp property price index reaches new high of 184.0 points

The property price index of the Association of German Pfandbrief Banks (vdp) rose to 184.0 points in the third quarter of 2021, thus reaching a new high (base year 2010 = 100 points). Property prices rose by 8.7% overall compared with the third quarter of 2020. The vdp property price index is based on vdpResearch’s quarterly evaluation of property transaction data from more than 700 credit institutions for the German market as a whole.

The divergence in price trends between residential and commercial properties that has been evident for several quarters continued in the third quarter: while residential properties rose by 11.4% – the largest price increase ever recorded for this segment – prices for commercial properties declined slightly by 0.9%, in each case compared with the same quarter of the previous year. Office property, on the other hand, after two quarters of slightly negative price growth, recorded a slight increase of 0.3% year on year, and as much as 1.0% compared with the previous quarter.

“Attractive and in demand – that is how the German real estate market looks, even one and a half years after the start of the COVID-19 crisis.”
Jens Tolckmitt

“Price trends in the third quarter are remarkable in several respects. First, the price increases for residential property show exceptionally high momentum, but are still explainable in fundamental terms,” stresses vdp Chief Executive Jens Tolckmitt. He refers to an analysis published by vdpResearch at the end of October as part of the “vdp Spotlight” series. “Second, prices for office properties quickly stabilised, as expected, which underlines the robustness of this asset class. All in all, the German real estate market is proving attractive and in demand, even one and a half years after the start of the COVID-19 crisis.”

Overview of changes in prices from Q3 2020 to Q3 2021:

Residential/commercial properties overall: +8.7%    
Residential properties in Germany: +11.4%        
Residential properties in top 7 cities: +9.9%        

Commercial properties:-0.9%
- Office properties: +0.3%
- Retail properties: -3.6%

Owner-occupied housing records largest price increase

The price increase of 11.4% compared with the third quarter of 2020 reflects still high excess demand for residential property. Prices of owner-occupied housing rose by 12.5%, thus making a slightly larger contribution to the price increase than multi-family houses (+10.9%). New lease rentals increased by 4.0%. At the same time, high investment demand led to increased pressure on yields. The cap rate index declined by 5.9% year on year.

Residential properties in top 7 cities show significant price increases

In the third quarter of 2021, residential property prices in Germany’s major cities also gained momentum, albeit at a slightly lower level than the average for Germany as a whole, growing by 9.9%. Among the top 7 cities, Cologne and Hamburg recorded the highest growth rates of 10.8% and 10.4% respectively. Berlin and Munich also recorded price increases of more than 10% each, with only marginally lower increases seen in Düsseldorf (+9.4%), Frankfurt (+7.7%) and Stuttgart (+9.0%).

Structural change continues to impact retail property prices

As in the previous quarters, prices for commercial property remained on a slightly negative trend in the third quarter. At –0.9%, the current rate of change arises from two opposing developments: while office properties were stable, with a slight price increase of 0.3%, prices for retail properties declined further (–3.6%) as a result of the structural change in the sector towards online retailing that began even before the pandemic. Given the different levels of demand for the two asset classes, the cap rate index for office properties fell by 1.3% compared with the third quarter of 2020, whereas it rose by 1.6% for retail properties over the same period. New lease rentals declined for both office and retail properties, by –1.1% and –2.6% respectively.