vdp property price index: Economic stress factors not yet evident in price trends

Berlin, August 10, 2022

vdp property price index reaches new peak in second quarter of 2022

Property prices in Germany increased by 8.4% year on year in the second quarter of 2022, with the property price index published by the Association of German Pfandbrief Banks (vdp) reaching a new record high of 194.8 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.

The strongest growth was again in residential property prices, which rose 10.1% across Germany. Prices for commercial real estate increased 1.9% compared with the prior-year quarter. This rise was attributable to prices for office properties, which gained 4.1% over the same period. Prices for retail properties continued their negative trend, with a fall of 3.5% against the same quarter a year earlier.

"As the property market traditionally lags behind macroeconomic developments, the economic stress factors are not yet discernible in the index performance."
Jens Tolckmitt

"The property market in Germany once again proved to be robust in the second quarter of this year, with prices continuing to rise year on year, in some cases significantly. This applies both to the market for residential property and to offices. It is nonetheless to be expected that economic stress factors such as the subdued outlook for growth, inflation, and the appreciable rise in interest rates will be reflected in the index results with a time lag," commented vdp Chief Executive Officer Jens Tolckmitt.

Overview of changes in prices from Q2 2021 to Q2 2022:

Residential/commercial properties overall: +8.4%    
Residential properties in Germany: +10.1%    
Residential properties in top 7 cities: +11.0%    

Commercial properties: 1.9%
- Office properties: +4,1%
- Retail properties: -3.5%

Owner-occupied housing remains in high demand

Demand for residential properties in Germany continued to exceed supply in the second quarter of 2022, with prices up by 10.1% compared with the same quarter of the previous year. The increase was attributable to a rise in prices for owner-occupied housing (up 11.6%) and for multi-family houses (up 8.6%). Rents under new contracts increased by 4.4%. The cap rate index declined by 3.9%.

Prices in top 7 cities increased by 11.0%

The increase in prices in the top 7 cities was somewhat larger than in Germany as a whole. Prices for residential property were up 11.0% in the second quarter of 2022 compared with the prior-year quarter. Berlin, Munich and Hamburg reported the most pronounced rates of increase at 11.9%, 11.6% and 11.2% respectively, followed by Cologne (+10.8%), Düsseldorf (+9.8%) and Stuttgart (+8.8%). The rise was a bit smaller in Frankfurt am Main, at 7.9%.

Diverging trend for office and retail properties 

A diverging trend in the two commercial property segments, office and retail, has been apparent for some time now. It continued in the second quarter of 2022, and affected not only purchase prices. Rents under new contracts for retail properties declined 1.9% in comparison with the same quarter of the previous year, while office properties posted a rise of 2.8%. The cap rate index for office properties fell by 1.2%, while the index for retail properties increased by 1.7%.

Outlook: “The price trend will weaken”

Tolckmitt expects to see a noticeable slowdown in price growth over the next few quarters. However, as demand continues to outstrip supply significantly, especially for residential property, a slump in prices is not expected from today's viewpoint. A factor supporting the robustness of the German market is that, unlike other European countries before the financial crisis, Germany did not build up a "stock" of properties, with the result that residential real estate remains scarce in many regions. Looking ahead, the performance of residential property prices is likely to return to being aligned more closely with the obtainable rent. This is because the special factor of "very favourable finance terms" has ceased to apply after many years, while construction costs have risen noticeably. It is nevertheless essential not to lose sight of the risks that could emerge from Russia's ongoing war of aggression on Ukraine and the associated energy crisis. This could also lead to a further economic downturn, including the risk of a severe recession.