“Location, location, location” is what has always been said on the real estate markets. But investors are slowly giving up this mantra. Lower prices and high rents are putting properties outside of the top locations in the spotlight.
Nationwide, real estate prices fell by 8.7 percent in 2023 compared to the previous year. The price decline was greater in metropolitan areas. Take Frankfurt am Main, for example: 6,100 apartments were sold there in 2022, compared to just 3,900 last year. And the average price for these sales fell enormously: from 1.2 million to 850,000 euros.
For the city’s planning officer, Marcus Gwechenberger, a logical development: “At the moment, individual sales of apartments are difficult. This is because prices and interest rates are too high and very few people can afford to buy an apartment for 700,000 euros at four percent interest.”
B instead of A: Interest rate increase changes purchasing behavior
The rise in interest rates has changed buying behavior. Investors or owner-occupiers are no longer looking for prime locations. They can afford them less and less and are moving to the outskirts of cities. So-called B locations are in demand, and here the price decline is not as noticeable, says Florian Bauer of Bauer Immobilien in Economic Update on dailynews24.
“It has mainly affected owner-occupiers: single-family homes, semi-detached houses and sometimes commercial properties,” says Bauer. “Investment properties and rented properties, on the other hand, have often remained stable in price because demand remains high and rents have also increased.”
Invest rationally rather than emotionally: Function rather than please
In the city, smaller units are currently being sought, two- or three-room apartments, says Bauer. On the outskirts, i.e. in B locations, it is the larger units: “The issue of home offices plays a big role here. People need more living space, and you can get that in B locations at cheaper prices. You are also in the countryside, and the sometimes good infrastructure makes it possible to reach the city centers very quickly. There are hardly any disadvantages, the advantages outweigh the disadvantages because the supply is so low and the demand is so high.”
Bauer advises investors looking for a capital investment not to approach the matter emotionally. For example, the decisive factor is not whether you can imagine living in the property yourself: “It doesn't have to be liked, it has to work. Do I have any demand there? What is the condition? Are the records clean? How does the purchase price compare to the rent? You have to ask yourself these questions and approach the matter really rationally.”
Demand is rising again
Prices seem to have stabilized at the now somewhat lower level – especially in the big cities, says Christine Helbach from the Frankfurt Real Estate Valuation Committee: “Due to the influx of people, we can see that the market is picking up again. And sales figures are also rising again.”
Demand is picking up again, says Helbach. That's why the forecast for the current year was revised last November. At that time, a drop in property prices nationwide of 2.8 percent was expected, but now it is only 1.7 percent. This means that the price drop is significantly weakening.
