In 2023 the market for investments in residential property was slowed by rising interest rates and because banks required buyers to furnish greater amounts of equity than before, causing prices to drop and price-to-earnings ratios to contract. For 2024 Grossmann & Berger (G&B) expects purchase prices and earnings (PE) ratios to stabilize. Current and future developments on the market for buy-to-let housing investments in Hamburg are outlined in G&B’s publication “Property Price Trend Residential | Investment | Hamburg 2024”. The average maximum PE ratio of a property in a prime location, which, at the market peak in 2021, would have commanded a price of 45 times the annual net rent, is likely to stabilize at 34 in the coming year. Experts forecast that the average minimum PE ratio of a property in a less desirable location will be 15. “The downturn in building activity is putting added pressure on the rental apartment market. This will lead to higher rents, which in turn will result in stagnating or slightly increasing purchase prices,” says Frank-D. Albers, managing director of Grossmann & Berger, member of German Property Partners (GPP). G&B predicts that the average maximum purchase price for standard properties** in 2024 will rise by about 4 % to €5,700/m² of living space. The average minimum purchase price is likely to settle at around €1,500/m².
Prices dropping by up to 40 % against 2021
In 2022 demand for residential investment properties in Hamburg slowed at the end of a brisk first half-year and led to falling prices. The Hamburg Real Estate Evaluation Committee (Gutachterausschuss) reported that the transaction volume fell by 36 % to €1.6bn. Compared with the record prices seen at the end of 2021 Grossmann & Berger currently notes prices dropping by anywhere between 14 % and 40 %, depending on the location of the property and its energy efficiency rating. “Overall in 2023 we expect a further decline in the volume of transactions and do not reckon with an upswing until 2024 at the earliest,” forecasts Albers.
PE ratios average between 20 and 24
“In the meantime, although many investors have accepted that the market has changed, some, but above all sellers, are still finding their bearings” remarks Albers. At present purchase prices are averaging between 20 and 24 times the annual net rent. Due to the ongoing discrepancy between the asking prices and what buyers are prepared to pay, Grossmann & Berger has updated the forecast PE ratios* and purchase prices for standard properties** for 2022 and 2023.
* 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 “Property Price Trend Residential| Investment Hamburg 2024” is available and may be downloaded from our Website