Research report
Rents rise despite increase in building permits

Empira study: Rents rise despite increase in building permits

  • Empira research conducts correlation analysis on residential rents in 80 major German cities
  • Strongest correlation between employment market data and rental development
  • Positive correlation of rents with building permits and completions
  • Wage growth has minimal effect on rents

Zug (Switzerland), 14 May 2018 – Empira AG, a leading investment manager headquartered in Zug, Switzerland, has published a new study on the impact of 11 different factors on residential rental growth in 80 major German cities. The study finds that the employment market offers the strongest correlation to rental growth. The amount of completions of new residential space and units as well as building permits also correlate positively with rising rents. The study covers a 10-year period.

The factors correlating strongly with residential rents are unemployment, the dynamics of property prices and employment level variation. Cities such as Berlin, Leipzig or Erlangen, whose employment situations have been particularly dynamic in recent years, have also seen above-average rental growth. However, there are less relevant correlations to, among other things, gross wage growth.

Professor Dr. Steffen Metzner, Head of Research at Empira AG, said: "We have tested a wide range of potentially influential factors. In particular, locations with positive developments on the employment market are registering rising rents after a short time. One factor is higher purchasing power; while another is the search for housing in proximity to work. Even if new sectors tend to hire highly qualified staff who are looking for housing at the high end, "trickle-down effects" also help other locations and price brackets on the market. If construction activity also increases, more living space does not necessarily lead to falling rents."

Lahcen Knapp, CEO of Empira AG, said: "With our latest study, we want to provide reliable statistics and identify correlations in order to make sound and sustainable investment decisions. Correlation does not necessarily mean causality, but the results are extremely interesting. That a robust employment market plays a key role in rent levels may come as less of a surprise. However, the positive, albeit low correlation between local construction activity - such as building permits or completions - and rents contradicts conventional expectations."

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