In Munich, rents are not following the decline in purchase prices; Rosenheim, Regensburg and Schweinfurt with slightly higher rent increases A high demand for living space as well as significantly increasing construction costs and costs for maintenance and modernization will ensure that rental prices will continue to rise in Bavaria in autumn 2022. The increase in rents for apartments and houses in Bavaria increased slightly in autumn 2022 compared to spring 2022. While the average rent increase in spring 2022 was +0.5%, it increased to an average +1.6%* in autumn 2022. In addition to the increase in rents, there will be a massive increase in ancillary costs, i.e. the so-called second rent, in the coming months due to the rise in energy costs. In a half-year comparison from spring to autumn 2022, rents for newly built mid-terrace houses showed the highest rent increases on the Bavarian average at +2.2%, followed by semi-detached houses/new buildings at +2.0%. Tenants paid +1.9% more for mid-terrace houses/existing properties in autumn 2022 than in spring 2022. Rents for semi-detached houses increased by +1.6% for existing properties in the period examined.

In all of the properties examined, apartment rents showed the lowest rent increases in autumn 2022 (old building +0.9%; existing building +0.9%; new building +1.5%). In general, it can be stated that new-build properties, both houses and apartments for rent, recorded significantly higher price increases than existing properties. Above all, the sharp rise in construction costs is causing significantly higher rental prices in the new construction segment. In many places, the historically low building interest conditions have partly overcompensated for the constantly rising purchase prices for residential real estate in recent years. After the rapid increase in interest rates and at the same time a very high purchase price level, which is currently not showing any noticeable declines, the purchase of real estate is becoming increasingly unaffordable for many potential owners.

It remains to be seen whether the trend towards living in the surrounding area, which was intensified by the corona pandemic, will continue in the rental sector. The currently very high petrol prices could turn this development upside down and quickly wipe out the price advantage of cheaper rent in the surrounding area, especially for larger commuter radii. Massively rising energy and consumer prices are currently causing significant uncertainty. Especially with regard to the coming heating season, the sharp increase in housing costs is bringing more and more households to their financial limits. Since the advance payments calculated on the basis of consumption in recent years cannot cover the significantly increased costs, tenants must expect high back payments. As a result, there is growing concern that many tenant households can no longer afford the rapidly increasing ancillary costs.

The federal government is currently preparing a series of relief measures for companies and consumers. Many of these are designed for the long term, such as the planned electricity and gas price brake, a housing benefit reform, an increase in child benefit or child benefit surcharge for low-income households and tax relief (increase in the allowance from 2023). Some measures such as the heating cost subsidy for those entitled to housing benefit or the energy flat rate are intended as one-off payments. In addition, the increase in the CO2 price planned for January 1, 2023 will be postponed by one year. In addition, negotiations are currently underway about a follow-up offer for the 9-euro ticket. In view of the increased construction costs due to the lack of building materials, disrupted supply chains, the shortage of skilled workers and a reduction in new construction subsidies, there is a risk of significant slumps in new construction, here again especially in the inexpensive segment. Under these circumstances, the federal government’s target of 400,000 newly built apartments in the next few years will hardly be achievable. Without a significantly higher housing production, however, an easing on the rental housing markets is hardly imaginable. It can be assumed that the demand pressure will continue to increase, especially in large and medium-sized cities. With the abolition of most travel restrictions and in view of a rapidly increasing shortage of skilled workers in Germany, it can be assumed that the influx of skilled workers will increase. In addition, the current rental market situation, especially in the metropolitan areas, is being exacerbated by the high demand for housing from refugees from the Ukraine.

The state capital of Munich In autumn 2022, the Munich residential real estate market will experience the beginning of a trend reversal. The upward trend in purchase prices in Munich was at least temporarily slowed down at a very high level, and stagnating or slightly declining price levels were recorded for all property types examined. As a result of the sharp rise in construction interest rates and the significant uncertainties in connection with the Ukraine war, there was a noticeable reluctance on the part of prospective buyers. Although the purchase and rental markets influence each other, the developments here do not always run parallel due to the sometimes different influencing factors. In autumn 2022, the rental price level on the Munich rental market, unlike in the purchase segment, will remain stable or rise slightly. A significantly increased demand for rental properties started in Munich in autumn 2021. Due to the sudden change in interest rates, many potential buyers had given up their intention to buy in the past six months and had to focus more on the rental market. Increasing population figures, partly due to high levels of immigration, and the increasing gap between supply and demand due to declining new construction activity will continue to exacerbate tensions on the Munich rental market in the future.

As early as spring 2022, a slight slowdown in price increases was observed in Munich, which will continue in autumn 2022. In a comparison between spring 2022 and autumn 2022, a stable rental price level was determined in all segments. Only the rents for old buildings and existing apartments showed a slight price increase of +0.5% each. The rental level for new apartments did not show any significant changes compared to the previous period. While houses for rent, both existing and new, recorded slight price increases of between +1.0% and +2.0% in spring 2022 compared to the previous period, the price level in autumn 2022 remained stable in all segments. The breather that the Munich rental price level is currently taking can be explained by the general economic uncertainty and will probably only be temporary. The composition of the factors with high purchase prices, rising interest rates and shrinking incomes due to the very high inflation make it difficult to buy real estate at the moment. It can be assumed that the changed framework conditions will increasingly divert demand from the purchase to the rental segment. The decline in new construction activity will reduce future supply and thus maintain the pressure on the Munich rental market with demand already being high.

Source: IVD