Real estate as an investment has repeatedly proven to be resilient in times of crisis. Historically, fluctuations in real estate values have been significantly smaller than, for example, those in the capital markets. Furthermore, when rented out, a property offers the advantage of a regular source of income, which generally covers all of the property’s operating costs. As rents rise regularly, the return on the real estate investment also increases steadily.
However, these returns can vary greatly depending on the type of property and, above all, on its location. In popular regions, higher prices are to be expected, which means that future returns may be lower. Investors must weigh whether they are willing to accept lower returns in exchange for a prestigious location or whether other regions might also represent attractive investment opportunities for them.
The rental yield is the primary indicator of an investment's attractiveness
When deciding on a real estate investment, various factors must be weighed against one another to find the investment that best suits your needs and goals. One of the most important factors to consider is the gross rental yield—the ratio of the purchase price to annual rental income. However, the resulting figure is only a rough guide, as the actual return can be much higher from tax savings or depreciation. A recent analysis by the ImmoScout24 portal shows where in Germany the highest rental yields can be achieved. In collecting the data, the listed purchase price of condominiums was compared to the listed rent from ImmoScout24. Dividing the purchase price (excluding closing costs) by the annual base rent yields the gross rental yield. For the figures on asking rents and asking purchase prices in the metropolitan regions, ImmoScout24 drew on data from the WohnBarometer for the second quarter of 2023.
Berlin – The Best of the Best Locations
Berlin tops the list when comparing rental yields for new-construction apartments in the seven major German cities. According to ImmoScout24, a new-construction apartment in the German capital is listed on average for just under 500,000 euros. The average annual base rent is a little over 15,000 euros. This results in a rental yield in Berlin of about 3.1 percent.
Given Berlin’s size, it’s also worth taking a look at rental yields across different neighborhoods. For example, the real estate portal miete-aktuell.de reports a rental yield of 5.00% for the Alt-Treptow district. According to the portal, the districts of Friedrichshain (4.00%), Charlottenburg (3.70%), and Zehlendorf (3.70%) also exceed the Berlin average.
The other top-7 locations in Germany offer rental yields ranging from about 2 to 3 percent. Although the rental yield is reduced by higher purchase prices, the advantage of these locations lies in the greater certainty of finding tenants due to the strong influx of people into major cities. This consistently high demand is particularly valuable during times of economic volatility, as it provides investors with planning certainty since there is virtually no risk of vacancies. The vacancy rate in Berlin is less than one percent, meaning that anyone who owns an apartment will always be able to have it rented. According to the City of Berlin’s official population forecast to 2040, the districts of Pankow (+9.0%), Treptow-Köpenick (+9.0%), and Mitte (+5.9%) in particular can expect a strong influx of new residents. But the districts of Charlottenburg-Wilmersdorf and Neukölln also expect population growth of 2.3% and 2.0%, respectively, by 2040.
Attractive Rental Yields in Saxony-Anhalt and Saxony
Anyone looking to broaden their horizons should also look for suitable investment opportunities outside the well-known metropolitan areas. According to Immoscout24, smaller cities sometimes offer the highest average rental yields in Germany.
Among the ten cities and counties with the highest average rental yields for existing apartments in Germany, the state of Saxony-Anhalt is represented most frequently. Here, peak rental yields of up to 5.4 percent were recorded—a good 2 percentage points higher than in most metropolitan areas. Saxony is also represented multiple times in the top 10 for peak yields, with two entries. Here, in the Vogtland district and in Plauen, an average rental yield of 4.9 percent was recorded. The highest rental yield in Germany for new-construction apartments is achieved by the Neunkirchen district in Saarland, at 4.0 percent. In the new federal states and in locations outside metropolitan regions, investors can benefit from lower average purchase prices and thus higher rental yields.
However, smaller cities in the catchment areas of major metropolitan areas also often offer attractive opportunities for landlords, as purchase prices have not yet reached the level of those in large cities, yet these cities are very popular with tenants due to their proximity to them. One example is Neuss, which borders directly on Düsseldorf, the metropolis and state capital of North Rhine-Westphalia. According to the website miete-aktuell.de, an attractive rental yield of 4.0% can also be achieved here.
Conclusion
Buying a home can still be considered a sound investment, despite—or perhaps precisely because of—economically uncertain times. Even though last year’s economic slowdown led to declines in value in the condominium market, this asset class remains on a long-term growth trajectory. For investors, rental yield remains an important indicator of an investment’s potential. An analysis by ImmoScout24 shows that the capital city of Berlin offers the most attractive returns. Investors willing to consider alternative locations in addition to the well-known ones can sometimes benefit from some of the highest rental yields in Germany in certain regions of Saxony-Anhalt and Saxony.
