A new report by Savills finds that the German residential market, which is the largest in Europe comprising approximately 1.4 billion m² at an estimated value of more than 2 trillion, offers attractive investment opportunities at both ends of the risk spectrum for core and opportunistic investors, with considerable regional disparity.
In a study across Germany's 127 largest housing markets, the firm notes that rents increased by more than 80% between 1995 and 2010 in Greifswald, in northeast Germany, but declined by 20% in the same period in Leipzig and Görlitz.
Savills identifies Munich, Regensburg and Stuttgart as the lowest risk areas for investors on a macro geographical level, whereas properties in Halberstadt and Gera carry a higher investment risk and may be of interest to opportunistic buyers.
The findings are from a new Savills survey 'Residential markets in Germany; current developments, prospects and opportunities', which identifies significantly over and undervalued markets across the risk map.
For example, as a core market, Munich attracts a high number of investors resulting in strong competition for available stock, which boosts prices disproportionately. In contrast in Regensburg, the multipliers paid there on average are substantially lower even though it only features a slightly less favorable risk profile than Munich.
Matthias Pink, Head of Research at Savills Germany who compiled the survey, says: "Investors seem to be prepared to pay a premium for the high level of safety that the Munich market offers them. Multipliers in Munich currently stand at 20-fold the annual net rental income, while in Regensburg they equate to 16-fold.
"Aside from Munich we have found that more expensive markets for residential stock include Passau, Berlin and Konstanz. Comparatively underpriced markets are Mainz, Gelsenkirchen, Mannheim and Flensburg."
In order to assess the investment risks and risk-return ratio of the various locations Savills carried out a detailed analysis of the German residential market in terms of its structure as well as the trends on the occupier and investment markets. The firm has based its risk assessment on a scoring model involving 17 indicators in terms of socio-demographics, economics and the residential market.
Karsten Nemecek, Managing Director at Savills Germany and responsible for Corporate Finance, says: "The study aims to draw a precise picture of the structure and mechanisms of the German residential market particularly for foreign investors unfamiliar with this market but also for domestic investors who have not yet been active in the sector but are considering investment opportunities."