Property Prices in Frankfurt – Needs, Challenges, and Outlook
Interview with Real Estate Agent Dean Vukovic
For years the Frankfurt region has been a magnet for new residents. The core city of Frankfurt alone has grown by more than 100,000 in the last 10 years, a 16% increase. There seems to be construction everywhere. However, real estate experts say there are not enough apartments, either presently or planned. Concerned about this topic, SKYLINE ATLAS asked Dean Vukovic about his experience and outlook for the Frankfurt real estate market.
Dean Vukovic is the managing partner of V&V Immobilien GmbH in Frankfurt. He and the V&V Immobilien team advise clients looking for a property or a sale. Customers include owner-occupiers and investors. V&V Immobilien focuses on marketing residential properties in the Greater Frankfurt Area. On the commercial side, V&V Immobilien primarily advises companies on the search for commercial or office space. V&V Immobilien is also active in investment advice and brokerage.
“In the short term, some companies could even require more space if, for example, appropriate social distancing rules are established over the long term.”
Dean Vukovic on the space requirements of companies in the coronavirus crisis.
SKYLINE ATLAS: Hello Mr. Vukovic. Thank you for taking the time to talk to us. As a Frankfurt real estate agent, you deal with many interested parties every day. What effect does the Covid crisis have on the Rhine-Main real estate market?
Dean Vukovic: In the long term, the German market could definitely benefit. But in the short term, the demand for rental space and commercial property may decline temporarily. Many companies, for example those who had planned to move, are more likely to think about lease extensions than to consider moving. In the transaction sector, too, restraint is currently the motto. Planning for new projects will be more challenging, and existing projects will have difficulties with completion dates. In addition, many companies will evaluate their experience with new concepts such as the home office, and adjust their future space requirements accordingly.
In the residential sector, demand for living space in Frankfurt and Offenbach is stable and high, so prices will likely remain at least at the current level. There are some very popular areas, including Offenbach Harbor.
However, the Covid crisis has increased interest rates on construction loans, making financing more difficult for private individuals. In addition, many banks have tightened their lending guidelines. Nevertheless, the residential property market should emerge stable from the crisis, as it is still considered to be crisis-proof, especially for investors.
Ultimately, however, a reliable prognosis is difficult, as everything depends on how long the current situation lasts.
SKYLINE ATLAS: More and more people have been drawn to Frankfurt in recent years, mainly for work. What are the best neighborhoods for singles and families?
Dean Vukovic: The Bornheim, Nordend, and Bockenheim districts are particularly popular with singles, young professionals, and young families. There are cafes, restaurants, supermarkets, countless shops, and an excellent infrastructure. Families who have moved here particularly appreciate the large number of spacious new apartments and the very international population structure of the European District. Here, too, an excellent infrastructure has developed in recent years.
For high earners, Frankfurt’s Westend is of course still the ultimate. However, each of Frankfurt‘s districts has its advantages and can cover the various needs.
Always at work, the phone never stands still.
SKYLINE ATLAS: With your company V&V Immobilien you mainly advise private property buyers, but also capital investors. What are you looking for at the moment?
Dean Vukovic: Small apartments with 1-2 rooms are of course very popular with private investors. On the one hand, the proportion of single households has increased significantly in recent years and, on the other hand, as an international financial location Frankfurt is also of course the point of contact for employees from all over the world who are staying in Frankfurt for a limited time and do not want to spend it entirely in a hotel. This results in a wide range of serviced apartments and furnished apartments in Frankfurt. For owner-occupiers, of course, real estate is of particular interest if it takes into account life planning such as starting a family, etc. The size and the infrastructure and connections play a role here.
Otherwise, we naturally have requests for investment properties such as residential and commercial buildings and apartment buildings.
SKYLINE ATLAS: Is lack of capital or lack of land a problem right now? In your opinion, what can politics do to ensure that more and, in particular, affordable housing is created?
Dean Vukovic: Definitely the lack of land. Building land is the basic requirement for urgently needed housing construction. For example, all federal land and properties that are not required for state purposes could be made available and sold via an accelerated award concept. Commercial wastelands that are no longer needed should no longer be a taboo subject and should be considered for the development of urgently needed living space.
The acceleration of planning and approval processes as well as the harmonization of building regulations, which are still a matter for the federal states, would also promote development.
Thousands of building regulations make building unnecessarily expensive and result in higher prices. Here, too, everything should be put to the test.
Last but not least, there are also tax issues, the adjustment of which would encourage construction of more homes, such as increasing the straight-line depreciation.
Dean Vukovic (right) in conversation with a work colleague.
SKYLINE ATLAS: According to our observation, new apartments in particular are still not rented months after completion. Why is that?
Dean Vukovic: In addition to “speculative vacancies”, many of the apartments are offered furnished. Of course, this removes the apartments from the classic rental market.
SKYLINE ATLAS: A repeated criticism is that only luxury apartments are being built in apartment towers. However, an example in Berlin shows that housing associations can also build new residential towers. Is it conceivable that public housing associations will also dare to consider affordable housing in high-rise buildings?
Dean Vukovic: For classic project developers, the subject of “affordable living” in high-rise apartment buildings is difficult for the reasons mentioned above, such as building regulations, expensive land purchases, and many other regulations that make construction more expensive and thus leave little room for maneuver in pricing. Housing cooperatives definitely have the necessary know-how to implement such projects. But here too we face the same problems. In order to create affordable apartments, the remaining units would have to be offered even more expensively. The only thing that helps here is to put all regulations to the test in order to be able to reduce manufacturing costs.
SKYLINE ATLAS: Media reports about the future high-rise master plan say that the City of Frankfurt wants to designate fewer or zero new locations for residential towers. What can we expect from politics? What do you recommend?
Dean Vukovic: Excluding further residential high-rise buildings per se is not a solution. More important are regulations that prevent the majority of apartments being built here from degenerating into speculative properties and standing empty, as happens currently in some new projects. Residential high-rises in Frankfurt can definitely help relax the real estate market, more than building sites for terraced or semi-detached houses that cannot even come close to meeting future needs. Here the city has to open up to this and flexibly adapt development plans in individual cases without having to open the gates for the next satellite cities.
SKYLINE ATLAS: Couldn’t cities like Vancouver or Toronto be used as model for new residential towers? High-rise living there works reasonably well.
Dean Vukovic: Basically, it can be observed that the resentment towards the much criticized apartment towers in Germany is fortunately decreasing. In cities like Frankfurt, there are mainly pragmatic reasons for this; there is simply no space to expand. Apartment towers can contribute to relaxation in order to cope with the enormous influx of new residents.
Apartment towers also have clear advantages in terms of energy efficiency. They have a favorable ratio between surface and room volume and large scale regenerative energy technologies work much more economically. This is a point that has not yet reached public perception.
SKYLINE ATLAS: Let’s talk about the Frankfurt office market. In times of the coronavirus, how realistic is construction of the Millennium Tower will in the next few years? How high do you estimate the pre-letting rate required for this?
Dean Vukovic: With regard to the Millennium Tower, the project developer CA Immo and the City of Frankfurt have already announced that they will publish further planning information in a timely manner. Basically, I think that CA Immo is very well positioned and that the current situation will not change anything in the project. What will possibly be reevaluated is the planned mix of uses.
However, I am convinced that a possibly necessary pre-letting rate can be achieved. Based on the information communicated so far, a landmark building will be created here that of course offers potential tenants its charm. Furthermore, the effect should not be neglected that such projects offer the possibility of repurposing older office buildings, for example as living space. Of course, the city is also in demand here.
SKYLINE ATLAS: Have you already felt any direct effects of Coronavirus and an increased trend towards home offices in Frankfurt? Do you expect delays or even investment freezes in projects such as the Central Business Tower or the site of the old police headquarters?
Dean Vukovic: There is no doubt that the current situation has driven a rethinking and also an acceleration of digitization that would otherwise not have taken place on this scale. However, it must be observed over a longer period whether employees can really work as efficiently in the home office. Furthermore, the much-cited work-life balance could become a problem in the long run if there is no longer a clear demarcation between work and private life. Many companies are now in a test phase in this regard, and it cannot be ruled out that this will impact the office market in the future. However, these are not yet foreseeable for me. In the short term, some companies could even require more space if, for example, appropriate social distancing rules are established over the long term.
There is no question that current projects are being scrutinized. And usage concepts may be reconsidered and adapted to the situation. So it could happen that the exclusive use as an office building is abandoned and the focus shifts increasingly to mixed use as office, residential, hotel, and commercial properties, as has already occurred successfully in some real estate projects.
SKYLINE ATLAS: What are your forecasts for the Frankfurt real estate market in the next few years?
Dean Vukovic: By international standards, real estate prices in Germany are still comparatively low. There are many surprises for the desperate investor or owner-occupier who has been looking for an “affordable” property for ages. The price development of real estate depends on many criteria such as income development, the economy, interest rate development, and population growth.
I therefore assume that prices in economically strong regions such as the top 7 real estate locations in Germany will continue to rise over the next few years, whereas prices in rural and structurally weak regions will tend to stagnate or even fall.
SKYLINE ATLAS: Thank you for the interview.
The interview was conducted by Michael Wutzke and Martin Bischoff in September 2020. Translated by Daniel Kieckhefer.