The Highest Returns are Paid in the Suburbs
Suburbia is Trending. As supply is drying up fast in Germany’s metropolises, many apartment seekers roam farther afield, flat-hunting on the periphery of the major cities, as do investors. For some time now, prices on the outskirts have also been soaring as a result – and in some cases, the price hikes were even steeper, as an analysis of the IW Economic Institute and the Association of Sparda Banks revealed.1
The findings show, for instance, that prices for existing flats on Berlin’s periphery have gone up by nearly 22 percent since 2017, compared to a growth rate of “only” 17.5 percent in Berlin proper. The price growth in the suburbs of Munich has, at a rate of ten percent, also outpaced the Bavarian state capital itself, where flats became six percent more expensive.
Suburban Districts are the Winners
Despite the rapid price growth, real estate investments in the suburbs remain a paying proposition, as the IW Economic Institute determined via a calculation for the second quarter of 2020. The highest returns for landlords were identified in the two districts of Barnim and Dahme-Spreewald, both of which lie just beyond the city limits of Berlin.
In an interview with the Handelsblatt business daily, Prof. Michael Voigtländer, real estate economist for IW, emphasised that the keen demand in the greater metro areas is here to stay. According to Voigtländer, it is reinforced by the consequences of the coronavirus crisis and the trend toward working from home. “The true winners will be the districts just outside the metropolises,” he said.2
Unchecked Demand for Condominiums
Apart from the larger supply available there, Voigtländer has lately noted that many are motivated by an increased inner conviction to live in the suburbs. This is due not least to the fact that the new work mobility qualifies the need to commute. Voigtländer predicts a particularly keen demand for those suburban districts that are well endowed with schools and preschools. Broadband expansion is also important in his eyes.
That being said, Voigtländer sees no signs that the metropolises proper will lose much of their appeal to the boom in suburbia. Neither does he anticipate softening prices in the metropolises, even as he credits the periphery with a higher growth upside. Generally speaking, Voigtländer believes that the German residential property market remains well-positioned even after nine months of coronavirus crisis. He considers the market undervalued rather than overvalued. Analogously, the analysis that the IW conducted together with the Association of Sparda Banks concludes with a positive outlook: It concludes that demand for homeownership remains on a “persistently high level.”