vdp property price index: Stabilization of property prices continues

Berlin, November 11, 2024

Quarter on quarter, vdp index shows slight price increases across the board

The stabilization of German property prices observed since the beginning of the year continued in the third quarter of 2024. Standing at 177.3 points, the property price index of the Association of German Pfandbrief Banks (vdp) exceeded the figure for the previous quarter by 1.0%. Compared with the third quarter of 2023, however, the price index was still down by 1.0%. vdpResearch has calculated the vdp index each quarter since 2010 based – unlike other price indices – on an analysis of actual property transaction data collected from more than 700 credit institutions. In this way, the index tracks price developments on the entire German market for residential, office and retail properties.

The increase in property prices in Germany was driven by residential property prices, which were up by 1.1% compared with the immediately preceding quarter (Q3 2024 against Q2 2024). Year on year (Q3 2024 against Q3 2023), on the other hand, residential property prices were still down slightly by 0.2%.

The trend for commercial property prices, which is to say office and retail property prices, again proved to be quite significant, with prices 4.7% lower than in the third quarter of 2023. However, commercial properties experienced an overall increase of 0.7% from the second to the third quarter of this year.

“Still too early to speak of the start of a lasting property market upturn.”
Jens Tolckmitt

“For the second consecutive quarter, property prices are following a positive trend compared with the immediately preceding quarter,” vdp Chief Executive Jens Tolckmitt pointed out. “Recent property price developments in Germany are a ray of light in an otherwise rather challenging geopolitical and macroeconomic environment, both nationally and internationally. Given these overall conditions, too, we believe it is still too early to speak of the start of a lasting property market upturn. Only the development of the index over the coming quarters will shed light on how robust the current market stabilization actually is.”

Residential properties: multi-family house prices rise year on year

The increase in residential property prices by 1.1% overall against the second quarter of 2024 was driven somewhat more strongly by price growth for multi-family houses (+1.3%) than for owner-occupied homes (+0.8%). Comparison with the third quarter of 2023 presents a different picture. Whereas prices for multi-family houses rose marginally here, too (+0.2%), prices in the owner-occupied housing sector, which is to say single-family houses and condominiums, were down slightly (-0.6%) year on year. Both developments together ultimately resulted in a minimal drop in residential property prices as a whole (-0.2%) between the third quarter of 2023 and the third quarter of 2024.

Rents under new contracts for multi-family houses rose again in the quarter under review, reflecting the persistent housing shortage in Germany. The rate of growth came to +0.7% on the quarter and +5.6% on the year. Returns on rental properties as measured by the vdp index for cap rates grew by 5.3% year on year. However, this was the smallest increase in returns since the third quarter of 2022.

“The situation on the housing market continues to worsen.”
Jens Tolckmitt

“Housing is already far too scarce. Nevertheless, month for month, fewer and fewer building permits are being reported, and building completions are languishing at much too low levels. The situation on the housing market continues to worsen,” Tolckmitt emphasized and, despite the current government crisis, he appealed to Germany’s political actors: “We urgently need decisive measures that will stimulate housing construction quickly and recognizably. These decisions must not be delayed any longer.”

Housing in top 7 markets: rents under new contracts and returns clearly on the rise

The development of residential property prices throughout Germany hardly deviated from the rates of change in the top 7 cities. In the third quarter of 2024, prices of residential properties in the seven metropolises went up by an average of 1.1% against the immediately preceding quarter. By comparison, they were still minimally lower (-0.1%) year on year.

Whereas prices moved up in all seven metropolises from the second to the third quarter of 2024 – most strongly in Frankfurt am Main (+1.6%) as well as in Düsseldorf and Munich (+1.5% in each case) – the trend in prices was mixed year on year. Prices in Cologne (+1.4%), Berlin (+0.4%) and Frankfurt am Main (+0.1%) increased, while those in Munich (-1.7%), Düsseldorf, Stuttgart (-1.5% in each case) and Hamburg (-0.2%) contracted.

By contrast, rents under new contracts for multi-family houses saw a marked increase across all top 7 cities (+4.6% on average), with the strongest growth reported for Berlin (+5.4%).

Among Germany’s top 7 cities, returns grew most strongly in the third quarter of 2024 in Stuttgart (+5.4%), closely followed by Munich (+5.3%), Berlin
(+5.2%) and Düsseldorf (+5.1%). The average rise in returns for the top 7 cities came to 4.7%.

Commercial properties: offices and retail premises see similar development

In the third quarter of 2024, too, the downturn phase in the property market had a considerably more significant impact, year on year, on commercial properties than on residential properties. Compared with the third quarter of 2023, commercial property prices fell by 4.7% amidst continuing moderate market activity. Prices in both sectors (-4.8% for offices and -4.5% for commercial premises) followed a fairly similar path.

Compared with the immediately preceding quarter, commercial property prices picked up on the whole by 0.7%. This was mainly attributable to rising prices for office properties (+0.8%). Retail property prices, on the other hand, increased only slightly (+0.3%).

As in the previous quarters, the vdp cap rate index measured a noticeable increase in returns, both for offices and for retail properties. Compared with the third quarter of 2023, returns for office and retail properties advanced by 6.9% and 8.1% respectively. Rents under new contracts likewise continued to rise in the quarter under review, achieving rates of change of +1.8% for offices and +3.3% for retail premises year on year.

Outlook: into 2025 with a stronger tailwind

“The situation in the German property market has eased appreciably in the course of this year. Nevertheless, it is still too early to sound the all-clear,” Tolckmitt emphasized. He warned that, particularly for commercial properties, the current development is as yet no more than a first indication of an end to the two-year decline in prices and the entry into a possible sideways movement.

“In view of economic developments and geopolitical risks, setbacks still cannot be ruled out.”
Jens Tolckmitt

“Only when the transaction numbers and financing volumes continue to climb substantially in all asset classes will the downturn phase be fully overcome. The present trend makes this scenario a possibility in the coming year,” Tolckmitt commented. At the same time, however, he pointed to the many uncertainty factors, first and foremost economic developments in Germany and the ongoing geopolitical risks. He went on to say that, against this backdrop, setbacks in price growth still cannot be ruled out. Nevertheless, Tolckmitt concluded on an optimistic note: “In any event, we will start 2025 with a stronger tailwind than we did in 2024.”