Hamburg used to be almost a little bit of backwater, the economy wasn’t going very well and property prices were going nowhere. But that has changed drastically, now Hamburg is booming. The city is growing and property prices have been increasing strongly and Hamburg is now one of the most expensive cities in Germany.
Hamburg and Berlin have been two of the hottest real estate markets in Germany the last couple of years. The reason for this is that both cities are growing quickly. Hamburg has now the second most expensive real estate in Germany. It is still far behind Munich but has managed to pass all other German cities. It has been an amazing development, given that ten years ago property prices in Hamburg were far behind cities like Dusseldorf and Frankfurt.
Demand is much higher than supply, making it very difficult to find bargains. This is true both for people looking to buy and for those who want to rent. Most experts believe that Hamburg will continue to prosper, at least for the next couple of years. But property investors need to be careful, prices are high compared with the rest of Germany. The common view is that price growth will continue but at a slower pace. At the same time, rents are unlikely to grow as fast as property prices. Tenants in Germany are protected from big rent increases by the law. This means at already low yields are likely to get even lower.
One thing to be aware of is that there is very little free space left for new property developments in the inner parts of Hamburg. New projects are mostly in the outskirts of the city. This should protect the prices in the attractive parts of Hamburg. And it is probably prudent to be careful with buying in the outer parts of Hamburg.
The politicians are well aware that a lot of people (that is, voters) have trouble finding affordable housing. Therefore, new projects are being encouraged and several have been started. But as mentioned, most of the new developments are in the outskirts of Hamburg.
So what does this mean for property investors thinking of buying in Hamburg? Most experts believe that the big price increases are over, prices will continue upwards but at a much more moderate pace. Virtually everyone believes that prices will increase more than rents, which means that yields will get worse. In other words, the party is almost over for property investors.
If you are happy with low yields, below four percent at the moment in the attractive parts of Hamburg, you can find properties which can be labelled as safe but unexciting investments. There is simple not much space left for new developments in inner Hamburg. The lowest yield is in Hafenstadt, 2.7%, which is a newly redeveloped area along the Elbe river. In the outer suburbs, yields are around five percent. Given the relatively poor yield in the outer suburbs and the number of new projects under way, it can be risky to invest in the outer parts of Hamburg. Unless of course you can find a bargain, but finding a bargain in Hamburg has been virtually impossible the last couple of years.