The combination of a housing shortage and high construction costs is causing rents in Germany to continue to rise despite falling real estate prices, according to a industry group for German real estate lending banks on Wednesday.
In the first quarter, residential real estate in Germany was 4.3% cheaper than a year earlier, according to the Association of German Pfandbrief Banks (vdp). Rents for new leases in apartment buildings, on the other hand, rose by 5.6%.
The banking group said rising rents for tenants would not let up anytime soon.
"There is immense pressure on the rental housing market," said the vdp's managing director, Jens Tolckmitt. "Demand far exceeds supply."
The cost of housing construction has risen significantly in recent years due to both higher interest rates on loans and sharply increased costs for labour and construction materials.
As a result, both housing construction figures and demand from potential property buyers collapsed, leading to lower purchase prices, according to the vdp.
The banking industry group said the sharpest real estate price decline was in Munich, Germany's most expensive city, where purchase prices fell by 5.3% within a year.
But the slump in construction activity is also exacerbating the housing shortage, driving rents even higher, which could continue for some time.
However, the association does not expect any further major declines in purchase prices for residential properties, but rather a gradual stabilization.
The commercial real estate market for office buildings, retail locations and other properties remains a different story, however.
Prices fell by almost 10% year-on-year, the vdp said.
Tolckmitt still does not see the "bottoming out" that many commercial real estate investors are hoping for, but expects further declines.
Vdp said its calculations are based on business data from over 700 banks active in real estate financing, not on purchase and rental offers, where public data is more frequently drawn from.
