vdp index: Property prices surge again in 2018

Prices in the German property market surged again in 2018. The property price index of the Association of German Pfandbrief Banks (vdp), which is calculated on the basis of real transaction data for the market as a whole, rose by 8% on average for the year (2017: +6.8%). Prices for residential properties increased by 8.3% (2017: +6.9%), while those for commercial properties climbed by 6.8% (2017: +6.5%). Price momentum decelerated slightly during the course of the year. However, the persistently strong growth rates do not yet point to a trend reversal at the present juncture.  

Residential property market

Developments in the German housing market were shaped once again by the discrepancy between supply and demand in 2018. Prices for owner-occupied dwellings advanced by 7.7% on average for the year (2017: +5.8%), and prices for multi-family houses by 9% (2017: +7.9%). The increase in rents in 2018 amounted to 4.6% in 2018 (2017: +3.2%).

In Germany’s top 7 cities (Hamburg, Berlin, Frankfurt am Main, Düsseldorf, Cologne, Munich and Stuttgart) growth momentum weakened over the course of 2018, although prices still saw a comparatively sharp increase averaging 9.9% for the year (2017: +13.7%). This suggests that the level of prices and rents now reached is making further hikes in this segment more difficult, and that households are instead increasingly turning to the more affordable surrounding area.

Commercial property market

In the market for commercial properties, the developments of the predominant asset classes (office and retail) differed greatly. The slightly contracting, yet still positive economic activity in Germany and the associated expansion in employment spurred the ongoing, brisk demand for office premises. As a result, the prices for office space again advanced strongly by 9.6% on average for 2018 (2017: +8.4%). Given that offices were in short supply, new lease rentals also recorded a significant jump, going up by 5.5% on average for the year (2017: +3.2%).

In the market for retail properties, “brick and mortar” businesses increasingly find themselves under pressure as online retailers go from strength to strength. Demand among retailers for sales premises was down once again. As a result, rents edged up by only 0.3% on average for 2018 (2017: +1.3%) and even went slightly into decline from mid-year.

“In view of the general yield setting and the lack of alternative investment opportunities, investors are still prepared to accept increasingly low returns. For the time being, no substantial stimulus is to be expected from interest rate developments. Weaker economic activity could somewhat dampen both demand and the propensity to invest,” commented Jens Tolckmitt, Chief Executive of the Association of German Pfandbrief Banks (vdp).

About the vdp property price index

The Association of German Pfandbrief Banks publishes, based on concrete transaction figures, quarterly rent and price indices showing trends on the German residential and commercial real estate markets. Prepared by the analyst firm vdpResearch, the index is used by the Deutsche Bundesbank as part of its property price monitoring activities. Over 600 credit institutions operating in the German financial sector supply transaction data business (purchase prices and rents actually achieved) on their real estate finance business, and it is these data that form the basis of the index.

Information on developments in the respective sub-markets as well as all index data on the individual vdp property price indices (2003-2018), and including charts and tables, may be found in the relevant publication and are also available as raw data at www.pfandbrief.de. Moreover, vdpResearch provides a more detailed assessment of the regional top 7 housing markets including all sub-segments (owner-occupied housing and multi-family houses) at www.vdpresearch.de.