Further price rises for buy-to-let properties expected in 2020

Hamburg: Market for Rental Apartment Houses 2019 / 2020

Press release | Hamburg

G&B’s Price Trend indicates that the cost of acquiring buy-to-let property will continue to rise. 2020 will see new highs for the key parameters on the market for rental apartment properties, namely the price/earnings ratio* and the square metre price. But this is not leading to falling demand. Commenting on the market, Axel Steinbrinker, managing director of Grossmann & Berger, says, “Despite rising purchase prices and sinking yields, rental apartment buildings are still popular forms of capital investment. One reason, apart from low interest rates, is the lack of alternative investment options.” However, the expert has identified market trends that might cause the rising price curve to flatten somewhat: “Owners of rental apartment buildings are currently worried by many issues, for example the possibility that further ‘social preservation orders’ could be issued in Hamburg’s inner city and the debate about compulsory purchase orders, maximum rents and measures to cap rent increases. These matters could act as a brake on future price increases.” Grossmann & Berger has compiled information and forecasts for 2020 on how the market for rental apartments in Hamburg is developing in its market survey of “Rental Apartment Houses/Buy-to-let investments | Hamburg 2019/2020” which was published today.
Maximum price/earnings ratio over 40
Between 2018 and 2019 both the minimum and maximum price/earnings multiples* for standard properties** have risen in all Hamburg locations. In 2018 the maximum multiple was 37, rising to 40 in 2019. This trend will continue in 2020. “In the coming year the maximum multiple will easily pass the current figure of 40. In Hamburg’s top locations we are expecting prices to reach 42 times the annual net rent”, forecasts Steinbrinker. This top figure can be attained for standard properties in the preferred parts of Hamburg around the Alster lakes and in HafenCity. The minimum multiple is also rising steadily, although the curve is flattening by comparison. Whereas the minimum figure was 20 in 2018, Grossmann & Berger now notes a figure of 21. The property service provider expects to see the minimum price/earnings multiple rise to 22 times the annual net rent. Rental properties in this category may be found in mid-grade and less desirable locations such as those south of the Elbe.
Square metre prices could hit 6,000 euros
The prices being paid per square metre of living space in apartment buildings are also rising steadily. The G&B Price Trend forecasts that maximum purchase prices for standard properties will reach €6,000/m² of living space in 2020. This translates into a 5.3 % increase in prices compared with 2019 (€5,700/m²). Square metre prices are also rising in the less sought-after locations. Grossmann & Berger estimates that the average price here will be €2,300/m² in 2020, or 9.5 % higher than the figure for 2019 (€2,100/m²). A comparison shows that the minimum purchase prices rose by +62 % between 2015 and 2019 and thus reflects an appreciable growth in demand for buy-to-let investments in less popular areas. Steinbrinker concludes that, “The significant rise in prices for properties in less sought-after areas of the city shows that buyers are increasingly willing to accept more modest locations if the yields are higher.” During the same period the maximum purchase prices rose by a comparatively low rate of 33 %.
* Price/earnings multiple: quotient of the purchase price divided by annual net rent, equivalent to the gross initial yield.
** Standard property: property in a normal state of repair (no new-built) containing at least five residential units and fully let at customary market rates.

The complete market survey (in German only) is now available and may be downloaded from our website.

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