In the fourth quarter of 2024, rental prices in Germany rose by an average of 4.7% compared to the same period the previous year, with significant increases in major cities such as Berlin, which saw an 8.5% rise.
Comparing 2024 to 2022, new rental prices have surged by at least 10% in several German cities, with Berlin experiencing an increase of over 22%.
A critical factor driving these rising rents is a notable decline in new housing completions, with only 260,000 new apartments finished in 2024 and an anticipated drop to 230,000 in 2025.
This shortage of new housing is expected to have significant effects on rental supply, exacerbating the ongoing demand.
The Institute of the German Economy (IW) attributes the ongoing rental price growth to strong demand amidst economic uncertainties, predicting this trend will continue into 2025 due to structural supply shortages.
The main reason for the rental price increase is the ongoing shortage of available apartments, particularly in urban areas and desirable locations.
Affordability for potential buyers has worsened compared to 2022, leading many to delay purchasing and seek rental options, which further pressures the rental market.
While buyers remain cautious and price-sensitive, some are finding more purchasing power due to lower interest rates and rising incomes, prompting sellers to adjust to new market conditions.
In contrast to the rental market, purchase prices for residential properties have remained relatively stable, with condominium prices decreasing by 0.4% and single-family homes increasing by 0.6% in the fourth quarter of 2024.
Looking ahead to 2025, the IW predicts a potential rise in residential property prices driven by stable or declining interest rates and increasing incomes, although the price dynamics of the 2010s are not expected to return.
The stabilization of property prices is attributed to a better balance between supply and demand, influenced by slightly lower financing costs.
IW real estate expert Pekka Sagner emphasized that 'tenants are paying for the shortage' and warned that the situation is unlikely to improve, with significantly fewer new apartments expected to be built in 2025.
