vdp property price index: Reversal of trend in property prices gains momentum
Berlin, February 10, 2023
vdp property price index shows a slight rise in prices for 2022 as a whole, but prices fell across the board quarter on quarter
Property prices in Germany increased slightly by 0.8% year on year in the fourth quarter of 2022, but fell by 2.0% overall compared with the third quarter. This was the second consecutive quarterly drop shown by the property price index of the Association of German Pfandbrief Banks (vdp). The vdp index, which is based on an analysis of actual property transaction data from more than 700 credit institutions conducted each quarter by vdpResearch, now stands at 188.9 points (base year of 2010 = 100 points).
This ambivalent development is also apparent in residential property prices, which rose by a further 2.1% in 2022 but fell by 1.8% quarter on quarter. In contrast, commercial property prices were universally in decline, with price drops recorded in the fourth quarter of 2022 compared with both the same quarter of the prior year (-4.4%) and the third quarter of 2022 (-2.9%). This trend is partly attributable to office property prices, which were down 2.6% year on year and 2.4% quarter on quarter. At the same time, retail property prices also fell by 9.1% and 4.2% compared with the same quarter of the previous year and the previous quarter, respectively.
“The sound overall conditions on the German property market should help it to cope well with the current price correction phase.”
“The many crises of 2022 are now leaving their mark on the property market at the end of the year, as we predicted. A quarterly comparison shows that prices are down across the board,” said vdp Chief Executive Jens Tolckmitt. “We anticipate further drops in the coming quarters – but we expect them to remain moderate on the whole. The sound overall conditions on the German property market should help it to cope well with the current price correction phase. Because even if prices were to fall by 15% in total over a longer period, they would be at the same level as at the beginning of 2020 as measured against the performance of the overall index.”
Year-on-year change in prices (Q4 2022 compared with Q4 2021):
Residential/commercial properties overall: +0.8%
Residential properties in Germany: +2.1%
Residential properties in the top 7 cities: +2.2%
Commercial properties: -4.4%
- Office properties: -2.6%
- Retail properties: -9.1%
Quarter-on-quarter change in prices (Q4 2022 compared with Q3 2022):
Residential/commercial properties overall: -2.0%
Residential properties in Germany: -1.8%
Residential properties in the top 7 cities: -2.0%
Commercial properties: -2.9%
- Office properties: -2.4%
- Retail properties: -4.2%
Prices for owner-occupied housing are more stable than those of multi-family houses
The continued year-on-year growth in residential property prices in the fourth quarter of 2022 (+2.1%) was due to a further significant increase in prices for owner-occupied housing (+3.9%) and only a slight rise of 0.4% in prices for multi-family houses. However, if we look at the change since the third quarter of 2022, there were moderate price drops of 1.5% and 2.1% respectively for both owner-occupied housing and multi-family houses, leading to an overall reduction of 2.0% in residential property prices between the third and the fourth quarter of 2022.
“There is no sign of a trend reversal in rent increases; quite the opposite, as new construction activity continues to lag far behind demand.”
Cap rates for multi-family houses rose by 6.0% year on year and by 4.1% compared with the previous quarter. Rents under new contracts recorded similarly positive growth, climbing 6.5% year on year and 1.9% quarter on quarter. “Demand for housing continues to come up against vastly inadequate supply, pushing rents up further. There is no sign of a trend reversal here, either; quite the opposite, as new construction activity in Germany continues to lag far behind demand,” Tolckmitt said.
Berlin and Frankfurt record the biggest price movements among the top 7 cities
Residential property prices in the top 7 cities performed similarly to those in Germany as a whole, with a rise of 2.2% year on year and a decline of 2.0% quarter on quarter. Once again, Berlin stood out among Germany’s major cities. Residential property prices in the capital grew by 4.6% year on year in the fourth quarter of 2022 and fell by only 0.7% compared with the previous quarter. The worst performance was in Frankfurt, where residential property prices were down 2.7% compared with the fourth quarter of 2021 and 4.8% compared with the third quarter of 2022. The other five major cities confirmed the overall trend among the top 7 cities, recording price increases year on year and a decline in prices compared with the previous quarter.
Office rents rise 5.4% year on year
After contrasting price trends had frequently occurred in office and retail properties in previous quarters, prices fell in both property classes in the fourth quarter of 2022, albeit to varying degrees. While retail property prices declined by 9.1% year on year and 4.2% quarter on quarter, office properties recorded smaller price drops of 2.6% (compared with the corresponding quarter of the previous year) and 2.4% (compared with the previous quarter). Rents under new contracts for retail properties fell by 5.1% and 2.5% respectively, while office rents increased by 5.4% and 1.7%. Meanwhile, the cap rate as a measure of return rose in both property classes and over both reference periods.
“The many challenges, paired with inflation, are making consumers less willing to spend and dragging down retail property prices.”
“The structural change and movement away from physical shops, which gained momentum as a result of the lockdowns during the COVID-19 pandemic, is continuing. But now it’s not just the growing market share of e-commerce that bricks-and-mortar retailers are having to contend with. That is being compounded by the many different challenges and by inflation, which are making consumers less willing to spend and dragging down retail property prices,” Tolckmitt explained. He added that the outlook for office properties was better, despite the slight decline in prices in the fourth quarter of 2022. “Demand for office properties in Germany is likely to remain robust. This is indicated by ongoing significant growth in office rents, for example – the user market is evidently intact.”