The size, location and features of people’s homes are likely to have become increasingly important for many occupiers in recent months owing to contact restrictions and working from home. Over the long term, this could drive demand for residential property even higher. The sustained attractiveness of residential property is also evidenced by price growth since the outbreak of the pandemic. Median asking prices for condominiums in independent cities (in German: ‘kreisfreie Stadt’) rose by an average of 7.5% last year. While this was lower than in the previous two years, such a strong increase is nevertheless remarkable in view of the major economic uncertainty. Asking prices for single-family homes registered even stronger average growth of 11% across Germany.

Residential property is also in greater demand than ever from institutional investors. This is already reflected in some of the figures for the global and German real estate investment markets. Around a quarter of the overall transaction volume in Germany last year was attributable to residential property, which is more than in the previous years. In the global investment market, residential use maintained its 15% market share, having consistently built up to this level over the years. There is much to suggest that this proportion will not only remain high over the coming years but will also increase further. Rental apartments are now also regarded internationally as core product and, compared with other sectors, these appeal to investors with their above-average positive outlook.

In Germany, at least, the prospect of stable, long-term and hence predictable rental income is likely to be a focal issue for many investors in residential property. Looking back over the last 30 years, average rents in the 127 RIWIS cities have only fallen in four of those years. Hence, they have been significantly less volatile than rents in many commercial segments. Even during the last financial crisis and after the dotcom bubble burst, apartment rents rose. This has also been true during the COVID-19 pandemic to date.

However, the graph also illustrates that the phase of massive rental increases has been consistently subsiding for three years. In many locations, the conditions suggest rather moderate rental increases over the coming years. Migration into many major cities has slowed while relocation to the suburbs has simultaneously increased. At the same time, more apartments are being completed than in recent years. These factors will bring some relief to the urban housing markets although, against a background of record low vacancy rates, we are far from being able to talk about any relieving of the strain in the rental markets. From an owner's perspective, conditions are therefore likely to remain positive for the foreseeable future. The number of households is set to rise further over the coming years. Employment rates are also expected to remain high and immigration to Germany will likely remain at a very high level as indicated by the stable immigration from other EU countries in 2020. Consequently, there is much evidence to suggest that residential rents will demonstrate their resilience once again and that owners of rental apartments can depend on stable, long-term rental income. As a result, there are good prospects of long-term high price levels and value stability.

In the real estate market, the 2020s will be a decade of transformation that produces changes in demand and requirements in many sectors. As an essential commodity, however, residential property will likely be faced with significantly fewer and lesser uncertainties. In such an environment, it is highly probable that residential property will be more sought after and consolidate its status as an anchor of stability in many real estate portfolios.