Desire to protect wealth fuels boom in residential assets

Hamburg: Residential | Buy-to-let investments 2021 / 2022

Press release | Hamburg

Because residential rents are inelastic, investors continue to regard buy-to-let house properties in Hamburg as extremely attractive assets. The market for buy-to-let housing has thus proved crisis-proof, even after eighteen months of coronavirus pandemic. This is illustrated by changes in the price/earnings ratios* and square-metre prices for buy-to-let houses, which have seen another sharp rise in 2021. “Whereas demand remains high, the supply of buy-to-let houses in Hamburg has dwindled appreciably. Because demand is greater than supply, the boom on the market for residential investment properties is continuing,” says Sandra Ludwig, managing director for investment at Grossmann & Berger, a member of German Property Partners (GPP). “The market is still awash with cash. As increasing numbers of banks charge ‘custody fees’ (negative interest) investors, especially private citizens, are focussing on wealth protection as an investment objective,” remarks Ludwig, giving reasons for the unabated high demand. Residential property is also seen as the least risky class of real estate asset. Grossmann & Berger has compiled information and forecasts for 2022 on the development of the Hamburg market for rental housing in its market survey of “Residential | Investment 2021/2022 Hamburg”.

Photo residential investment Hamburg-OttensenSteadily rising price to earnings ratios in B and C locations

As the G&B Price Trend indicates, the price to earnings ratios* for standard properties** will continue to rise in 2022, although not as steeply as in the current year-on-year comparison. The maximum ratio, a price to earnings multiple of 42 in 2020, rose to 45 in 2021, and in absolutely premium parts of the districts near the Alster Lake the multiple is now expected to climb to 46 times the annual net rent excluding services in 2022. Grossmann & Berger likewise expects a continuous rise in the minimum ratio to a multiple of 24 for real estate in less desirable locations south of the Elbe. “Properties in B and C locations and those in the environs of Hamburg can still command yields of over 3.0 per cent, making these districts very attractive alternative investments,” says Ludwig.


Within three years prices surge by 20 and 25 per cent

The strength of this dynamic market is reflected in the prices being paid. Since 2018 the maximum purchase price for standard properties** soared by €1,100/m² of living space, reaching some €6,600/m² by 2021. This translates into growth of 20 percent. During the same period, the minimum purchase price rose by €500/m² of living space to a new high of €2,500/m² – an increase of 25 per cent. The G&B Price Trend predicts that the rally on the buy-to-let housing market will persist in the coming year. “We are expecting the maximum purchase price for housing within Hamburg city limits to rise by about 3.0 percent and believe that the minimum price will rise by about 8.0 per cent,” forecasts Ludwig. However, the trend towards higher prices could be halted by political measures, so that price stagnation cannot be ruled out.

* Price/earnings ratio: 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 (not a new build) containing at least five residential units and fully let at customary market rates.
The complete market report will soon be available as download on our website.

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