Statistical Federal Office reports a moderated decline in building permits

The number of housing permits in 2023 decreased compared to the previous year. In 2022, according to the Statistical Federal Office (Destatis), 254,400 housing units were approved in Germany, and this year it is expected to be slightly over 250,000. The government's target of constructing 400,000 new dwellings annually will once again be significantly missed.

However, there's a positive note: Destatis reports a moderated decline in building permits compared to 2022. In October 2023, 22,500 dwellings were authorized in Germany, marking a 11.5% (2,900 permits) drop from October 2022, yet it's the smallest decrease compared to last year. Previous months saw between 26 to 30 percent fewer permits issued.

Destatis notes that the decline in October 2023 was primarily in permits for multifamily houses. Two-family houses experienced the strongest decline from January to October 2023, with approvals decreasing by 50.5%. Single-family homes reduced by 38.2%, and multifamily dwellings saw a 25.2% decrease in permits.

Decreasing vacant dwellings

It's a tough time for house hunters: A CBRE and Empirica study reveals dwindling vacant dwellings in German cities, some areas reaching near-zero vacancy rates. Comparing the count of market-ready dwellings—those immediately or near-term rentable – indicates a decreasing trend. The CBRE and Empirica Vacancy Index reported 554,000 market-ready units by the end of 2022, marking a 2.5% vacancy rate—53,000 units less than the prior year's 607,000.

Reiner Braun, Empirica AG's executive, noted the largest decline in the 22-year history of the Vacancy Index. It's the first time there was no year-over-year increase in any of the 400 German districts. According to the index, East Germany (excluding Berlin) has a 5.8% market-ready vacancy rate, notably higher than the West's 1.9%. A stark difference is also observed between growth and declining regions, with vacancy averaging 1.6% in growing areas and 8.3% in shrinking regions.

Economically robust cities face the most strained housing markets. CBRE and Empirica's study highlights Munich (0.1%), Frankfurt, Münster, Freiburg (0.2% each), and Erlangen (0.3%) with the lowest vacancy rates. Conversely, Pirmasens (8.6%), Frankfurt/Oder (8.4%), and Dessau-Roßlau (8.3%) in the East have comparatively high vacancies.

Using study results offers insights into vacancy trends in various regions or cities. For instance, Leipzig's vacancy rate decreased by 1.9 percentage points in the past five years. The influx of Ukrainian migrants due to the war likely heavily impacted vacancy rates. Authors anticipate further reduction in market-ready units over the next two years, owing to declining building permits and completed dwellings.

Investing in residential properties pays off: Rents continue to rise

The current real estate market presents favorable opportunities for residential property investors. Increased interest rates have reduced buyer competition compared to a few months ago, while property owners benefit from continued rent hikes due to persistent high demand.

The housing shortage notably impacts rents in the seven major cities. According to the Association of German Pfandbrief Banks (VDP), new lease rents in multifamily houses in the top 7 cities increased by an average of 5.9% compared to the previous year's quarter, with returns rising by 11.9% in the same period. Berlin and Munich notably influenced these developments among the metropolises, showing the highest growth rates in new lease rents (8.7% and 5.2%, respectively) and returns (13.9% and 12.9%). Due to the scarcity of offerings, significant price declines aren't expected in the residential property market.