Germany's regions and property markets

The Federal Republic of now contains sixteen federal states (or Länder, pronounced: lender) – including the city-states of Berlin, Hamburg and Bremen – which enjoy considerable autonomy in various contexts. This has special significance for the real estate investor and property developer.

Germany’s historically developed regions – which don’t necessarily overlap with the federal states – have distinct cultures and economic environments that should be considered in any investment decision.

East and West

The main regional dividing line in today’s Germany, the one we are all familiar with, follows the border that separated the German Democratic Republic (GDR or East) from the Federal Republic of (West Germany) from shortly after WW II until Unification of the two states in 1989. At Unification eastern Germany was in a desolate economic state indeed. Today, parts of it are growing strongly due to the Federal German government’s huge investment made in its infrastructure. Most of eastern Germany is remarkable for it good roads and public transport, fine public spaces and impressive new construction. But still, large parts suffer from depopulation and are economically under-developed or, even, regressing. Other areas within eastern Germany, however, profit well from their modern universities or proximity to economically expanding former Eastern Block countries. They stand out for their strong growth and are notable as centres of industrial research and technological innovation.

There are many attractive real estate investment opportunities in the former GDR where prices can be relatively low, demand strong and growth potential very real. At the same time, however, extensive backwater areas, even with good infrastructure and very low-priced objects that might be physically quite substantial, should probably be avoided by an investor expecting strong value appreciation. In these areas, due to loss of population and de industrialisation, significant growth cannot realistically be anticipated for the near future. Careful, qualified assessment of individual particulars is essential.

North and South

Another important regional division – historically more remote and therefore not quite so sharp – separates Germany’s north and south.

For Germans, the south means above all the states of Bavaria and Baden-Württemburg. These relatively well-off parts of the country are famous for – besides their good food, beer and wine – the industriousness of their residents and, not surprisingly, for their successful industrial sector. This applies to both large corporations (for instance Mercedes, BMW and Siemens) and small to medium sized family-run businesses.

The exciting metropolis Munich, the capital of Bavaria, has a solid, world class real estate market with prices approaching London’s. Of course yields on new investment there tend to be accordingly low. But since Germany has long persued an effective policy of strong regional development, economic vitality and good quality of life is generally well dispersed. The many smaller cities and towns especially in Germany’s prosperous south, but also in other more restricted areas throughout the country, therefore often provide especially good real estate value with attractive income and real growth opportunities at reasonable prices: probably a good way to get to know Germany and its real estate business.

German property market: Literature update

German government agencies and academic institutions generate a great deal of valuable information that an investor considering the purchase of real estate in Germany should be familiar with. Often this material is never translated into English. There are, of course, much worthwhile data and reports on German regional property market trends made readily available by large international real estate agencies such as DTZ and CBRE. But the actual academic and government sources of the information, tend to be neglected by investors, especially those outside of Germany.

To encourage property investors from overseas to step into the German real estate market, portfolio-germany.com provides a synopsis in English of important work and links to the original German sources that, we hope, will help them make an informed investment decision. Portfolio Germany’s principal, William Rauch, an urban planner with extensive professional experience in both Berlin’s and New York’s city planning agencies, keeps abreast of current German research and literature and helps you gain access to recent work pertaining to real estate development and the German property market, for instance

laws and regulations
taxes or subsidies
regional and urban development planning
long-term market supply and demand
property prices, rents and yield

If you find an item especially interesting or have a question, please drop us a line. We’d be glad to discuss it with you. For a linked list of current English language articles about real estate investment in Germany see our Why Germany page.

Important Sources

The Federal Institute for Research on Building, Urban Affairs and Spatial Development is a German government agency with a policy advisory mission that focuses on various aspects of the urban development and is a good source of information about trends in the real estate economy.

We highly recommend their very recent English language publication – from January 2012 – Housing and Property Markets in Germany 2011 at a Glance (available as PDF). The document, which includes much data and many graphic resources, provides a valuable overview of the German real estate and, especially, the housing market. It includes detailed information about, for example, regional building activity, housing rents and property prices, property sales transactions and vacancies in commercial and residential sectors. The report also provides a valuable assessment of the German real estate market and German attitudes towards property ownership in a European and global context.

Map courtesy of www.theodora.com/maps used with permission.