Rental market decoupled from property prices

For many years, the various submarkets of the property industry were in equilibrium. The crisis-ridden developments of the recent past have led to changes. While residential property prices have fallen for the first time in the last one and a half years, rents have risen continuously. 

The development of rental prices, particularly new and re-letting rents, has taken on an unusual dynamic with double-digit growth rates since the beginning of 2023 at the latest. According to the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR), rents for advertised existing flats in Germany rose by an average of 7.6% year-on-year to EUR 10.21 per square metre net cold in the first half of 2023. In the independent cities with more than 500,000 inhabitants, they even rose by eleven per cent to EUR 13.30. Against the backdrop of the general housing, rental and construction crisis, a trend reversal is not in sight; on the contrary, almost all experts expect rents to continue to rise.

The German Tenants' Association (DMB) fears that "if the trend continues with double-digit rent increases, the rental market will ultimately collapse. (...) Because today's high asking rents will flow into the rent index and thus into the existing rents of tomorrow," says DMB President Lukas Siebenkotten. The DMB is therefore calling on legislators to effectively limit the scope for rent increases.

The drifting apart of rents and property prices is a consequence of the previous coronavirus and energy crisis. These led to a high inflation rate and an extraordinary rise in interest rates. Prices have fallen on the property market, the construction industry is lacking orders, the number of new builds is falling drastically and there is a shortage of several hundred thousand flats on the rental market. 

The current situation is unsettling both prospective tenants and buyers. The current process will return to normal once the interest rate situation stabilises. Until then, patience is required. Anyone who urgently needs a new home now should look for property offers on both the rental and purchase markets. 

(Photo: © Karsten Paulick, Pixabay)