German residential

The scarcity on the German rental housing market and the resulting rental growth, combined with the price corrections that have taken place in the course of the interest rate turnaround, make an entry into the German housing market particularly attractive at the moment.

Kerstin Hansen - Research Analyst, Real Estate DACH

Due to its size and liquidity, the German residential market plays a special role for investors, also because the residential real estate market in Germany ₋ in contrast to many other countries ₋ has been an institutionalized and professionalized asset class for some time. At USD 21.1bn median yearly transaction volume over the past five years, it has seen 66% more transactions than the second largest European market (UK). Next to its population size, the market size stems mainly from the high proportion of tenants (53%) in Germany¹.

The traditionally strong German tenant market has received a further boost over the past two years due to the rise in financing costs and the further decline in the affordability of ownership. In addition, strong population growth, driven by net immigration, has increased demand. However, the high demand hits a declining expansion of supply as construction activity has been low. In a market that is already characterized by scarcity, this will likely lead to further positive rental growth in the future.

The price corrections that have now taken place in the wake of the interest rate turnaround are helping investors to find attractive entry opportunities. Looking ahead, the expected rate cuts are likely to lead to a bottoming out in prices and a resurgence of the transaction market. After the corrections in 2023, a total return of 5.6% per annum² is expected for German residential real estate from 2024 to 2026, mainly driven by a robust income yield, but also slight capital gains again.

Source: 1 MSCI RCA, Oxford Economics, Trading Economics, UBS Asset Management, Real Estate & Private Markets (REPM), February 2024. 2 Oxford Economics, UBS Asset Management, REPM, February 2024. Past performance is not a guarantee for future results.