Property Market Analysis Frankfurt

Text by Sven Heinen

Frankfurt Property Market: Advancing only

Other than the skyline, the prices at Main river are not rising straight up into the sky. However, there is a lot of dynamic and potential between Westend and Ostend of Frankfurt.

What was this phrase again? … “I have some good news and some bad news. Which one would you like to hear first?” I am not sure what you used to answer to this question, but I usually decided to listen to the bad news first because the good news usually compensates it afterwards. So then here we go. The bad news comes from a research institute called Empirica based on recent studies which were done on the authority of the LBS (name of the federal building and loan association). Based on this research, it is rather difficult to fulfill the dream of one’s own home within the Rhein-Main area. In Frankfurt a real estate buyer needs to earn 72 % more than the average income in this area in order to be able to buy a house. This is the third-highest value countrywide. Munich as well as Garmisch-Partenkirchen are the only areas where one needs to invest even more for a real estate. But also the surrounding areas of Frankfurt are not much better. Also Offenbach (with plus 49%), Darmstadt (plus 47%) and Wiesbaden (plus 45%) – the costs for one’s own home are high.

Housing construction

Positive development since years

The converse argument to this is that real estates in Frankfurt or Wiesbaden are accordingly valuable. So perhaps the news is not quite as bad. But it doesn’t really matter, for the good news is coming from the building sector. Because while Germany as a whole, speaking of building construction, is coming to an end just like in the rest of Europe, there doesn’t appear to be any crisis for construction at Main. While there were 2,506 apartments approved for construction in 2000, in 2009 there were 2,739 units. Though there were some ups and downs, the uptrend is clear.

And this is a plus which can literally be seen: building cranes everywhere – in Westend, in Europaviertel, in Ostend and also at Riedberg. Latest in summer another large construction area is supposed to be added. At least the building plans for the European Central Bank in the Ostend district are said to be completed and it’s construction is about to begin, as based on current reports. It is going to be interesting to watch. Especially how the surrounding area is going to be affected from this project in the coming years. If one wouldn’t mind taking on a risk now, one could e.g. get a very cheap offer in the redevelopment area around the zoo. One of the men of action of Ostend is doing projects inside the city right now. An ambitious project developer wants to turn the former diamond stock market – a 12-story office building inside the city center – into a “lifestyle-product”. He planned out 100 residential lofts with different concepts and single retail spaces in the ground floor. If there is anyone who knows the ropes when it comes to revitalizing, it is this man.

So it is clear to see that there still is a lot of dynamic in the real estate market of Frankfurt. Even the financial crisis was not able to stop the positive developments of the past years. Even though the species of investment bankers in the mid-30s has totally vanished from the market, it is being said within the Main-metropolis that the financial crisis even has supporting effect on the market. Apartments have partially changed owner in huge numbers. In short: years of crisis are years of real estates – this is at least what most of Frankfurt’s experts say.

So the real estate has moved back into the focus of the people – whether as an investment or for owner use. The sector of multiple apartment blocks is the best example here; several real estate agents say that these can be disposed of at any given time. In some cases even a trip into the Caribbean’s has been announced as a price for a successfully done real estate deal. However many of the people searching are looking for very inexpensive offers.

So altogether there are very interesting signs. But no one is making a secret out of the fact that even the expensive areas do not really take off currently. Even though the demand for high quality properties in the top locations such as Westend or Nordend  (quarter “Holzhausenviertel”) is unbroken; the time for low price bargains seems to be over for now. Along with this we have two real challenges: one being that the interested customers are very choosy and unwilling to take compromises, the other being that the market is lacking some really good properties. These are two points which are not easily combined, so it is no surprise that also the prices are hardly moving. The top limit is 5,000 to 6,000 Euro per square meter; in absolute exceptions you have 7,000 Euro per square meter. The rumors that there have been prices of up 10,000 Euro per square meter in the district Holzhausenviertel in the past year have never been affirmed by the committee of valuation experts.

Conclusion

Years of crisis are years of real estates

Since several years, the increasing demand for single family homes with garden inside the city is conspicuous. With this, the interest also grew for areas which are structured rustically or “typical for Frankfurt” such as Dornbusch, Eschersheim or especially Bornheim. As a result, the price level in these areas has more and more come to the price level of Sachsenhausen. It often occurs that the groups interested in these districts are families moving from the environs back into the city; this might also be attributable to the rising living quality as well as the rising gasoline costs. But unfortunately these people often search in vain – because either they do not have a sufficient budget for their own home in these areas or the development areas do not meet the expectations of the customers. So in many cases the only alternative left is renting.

Speaking of which: based on the information of several experts, in various price segments the customers are orienting themselves on the renting market. Especially in the top locations there is quite a demand for rented apartments or houses as well. But where the prices go beyond 18 Euro per square meter, there is not much demand left. So also in this sector the people have become more careful, and apparently the decision processes took longer and the consulting intensity rose.

However the location “Lerchesberg”, in the south of the city, a district which even the experts speak of as a problem, shows that even bad news can turn into good ones; several reports have shown the strongly descending real estate prices in this area, which has often been called the “millionaire’s hill”. Those who invested in real estates in this district during the period of high prices from 1995 ‘til 2000 will certainly lose when re-selling. But: it slowly becomes apparent that because of the increasing air traffic, the villas here (some of which being highly attractive) are drawing on two entirely new categories of buyers. First – there still is the category of so-called “image-buyers” which are only interested in the address. Second, some of the prices of these houses are dropping so drastically that these properties are now interesting objects for people which could have never afforded a villa which costs millions. Yet what if all of the sudden this villa only costs 600,000.- €.

(End of Article).