Germany Residential Construction Market - Growth, Trends, COVID-19 Impact, and Forecasts (2023-2028)

The Germany Residential Construction Market is anticipated to register a CAGR of more than 7% over the forecast period. The market is driven by the huge number of immigrants residing in the country demanding new homes. Furthermore, the market is driven by government initiatives to provide affordable housing and fulfill the housing demand increasing in the country.

Key Highlights

• Expectations for the construction industry in 2023 remain optimistic. This expectation must be revised in light of the conflict in Ukraine. At the moment, it is difficult to predict how the Russian invasion of Ukraine will affect the German construction industry. In some materials (steel for concrete reinforcement), nearly half of the material used comes from Russia or Ukraine. Until 2021, real construction investment increased by 39%, and the number of new flats and houses on the market more than doubled to more than 300,000 units. The most important reasons for this development have not changed during this time. A large number of immigrants, the record low mortgage rates, the extremely high demand for new apartments in agglomeration areas, the rising disposable incomes of private households and the search for investments with higher yields than the capital market has to offer.
• Furthermore, the government has significantly increased affordable housing subsidies. To ensure that the new affordable housing goals are met, the government has established a new ministry to oversee the sector's development. Based on current migration trends, Germany is expected to require at least 400,000 new housing units per year for the next decade or more. The publisher anticipates that the new government's increased emphasis on affordable housing and the need for new housing units due to increased migration will continue to support the country's industrial growth in the short to medium term. As a result, keep a positive outlook for the German residential construction sector over the next four to eight quarters.
• The German housing market has been remarkably strong for decades, but it faces a significant price decline in the coming years. According to the Cologne Institute for Economic Research, approximately 5 million people in Germany earn a living from renting, and the country has the second-lowest share of homeowners among all OECD countries, according to the Bundesbank. Because fixed-rate mortgages account for more than 80% of mortgages in Germany, many households have locked in the very favourable financing conditions that existed until very recently for five to ten years. Housing scarcity, rising rental prices, and a strong labour market will continue to support the market, even if house prices fall, it wouldn’t necessarily be a bad thing.

Germany Residential Construction Market Trends

Rising Home Prices in the Market

The average sale price of a house or apartment in Germany increased by 10% in the second quarter of 2022 compared to the same quarter the previous year. According to the Federal Statistical Office (Destatis), the rate of increase has remained above 10% for the fifth quarter in a row. According to Destatis, prices continue to rise fastest in rural areas, where house prices increased by 13.6% compared to the same quarter last year. However, this does not mean that prices aren't rising in German cities: housing in the country's top seven cities (Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart, and Düsseldorf) cost 12.2% more in the third quarter of 2022.

Even though 2022 has been a year of price corrections in many markets, the implications of housing make it one of the most sensitive and distinct sectors. Housing is the primary form of investment for many people, but even when not owned, real-estate-related payments (whether for rent or mortgage loans) consume a large portion of monthly income, and housing is a basic social need. While real estate overvaluation is a worldwide concern, Europe is particularly affected by the current energy crisis and its impact on real incomes. As Europe slips into recession, rising interest rates and higher energy costs have made home ownership out of reach for the majority of households, exacerbating pre-crisis price pressures.

Increased investment in residential real estate driving the market

The green transition is one trend that will have an impact on the German real estate market in the future. The German government is strongly encouraging energy-efficient housing because the building sector accounts for 16% of total greenhouse gas emissions in Germany. Recent plans to reduce reliance on Russian oil and gas could hasten the green transition in housing. The "Immediate Action Program 2022" will add five billion euros to promote energy-efficient building refurbishment and new construction, including social housing. However, political support could be a stumbling block. Although housing construction is being promoted in tight markets, and assistance is being provided to increase efficiency, there is a risk of high bureaucracy and regulatory hurdles. This could cause a slowdown.

According to Savills, the situation in the German residential market is currently highly ambiguous. Changes in financial conditions have caused significant reluctance among investors in the investment market. In contrast, supply in the rental apartment markets has become even tighter, which has improved long-term income prospects for investors. Savills anticipates that the tug-of-war between increased apartment scarcity on the one hand and rising interest rates on the other will continue in the coming months. This will create numerous opportunities for investors in the coming months.

Germany has Europe's strongest economy and clear urbanization trends, making it especially receptive to NREP's expertise in improving city-built environments. It is capable of developing more customer-focused products and implementing ESG initiatives more broadly, which has proven to be a successful strategy when expanding into new Northern European territories. NREP has formed a long-term joint venture with Artisa Group, a major Swiss real estate developer operating across European markets, for its first German investment. The joint venture intends to deliver 5,000 co-living apartments by 2025, with the first investment consisting of the purchase of two co-living assets totalling 314 individual apartments. One of the assets located near Berlin's new business district Mediaspree will be DNGB Gold certified once completed in 2024.

Germany Residential Construction Market Competitor Analysis

The Germany Residential Construction Market has become increasingly competitive and fragmented with a large number of local and regional players and a few global players. Some of the major players in Germany include Arup, BAUER Spezialtiefbau GmbH, GOLDBECK GmbH, KAEFER Construction, Max Bogl, and many others. Increased infrastructure spending, new government initiatives to drive investment, and new project announcements are expected to drive overall growth in the real estate sector, which may pique the interest of more investors.

Additional Benefits:

• The market estimate (ME) sheet in Excel format
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