1.2 | The one in which we get out a big crystal ball
The world loves trends and predictions - so naturally, we are looking ahead to what this year will bring for all of us real estate buying folk
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Ask Vogue what’s trendy in 2022 and you’ll get a pretty straight forward answer: midriffs and mini skirts (I’ll stick to the latter, thank you). Oh, and “tops that pop, fluff, and fray” - but I wouldn’t even know how to explain what that might look like. So Vogue knows their stuff, one might think, they seem pretty confident about this. Sure, when have miniskirts ever NOT been awesome - but along with these three predictions the magazine gives you seven more for the nice round number of ten trends and boom, job done. I kinda envy that Vogue intern, uh, editor right now. I, too, would like to look at runway photos and distill similarities between different, colourful outfits in a grown-up, slightly more sophisticated version of the hit game “one is not like the other”.
Food trends, check, same story. Apparently potato milk will be a thing this year (and I have juuust gotten myself used to the oat!) as will climatarianism which I full heartedly support, because really no one should eat polar bears (sorry, Dad joke). And have you heard of the term “revenge travel”? No, it does not have anything to do with your ex. Instead, it means traveling to get back at the virus - and is the hottest travel trend of 2022. We see a pattern emerging here ... name an industry, any industry, and there are the trends. Especially after the last two years, the “why” doesn’t come as much of a surprise I guess. We all want to know what the future holds and, more importantly, how to best prepare for it?
As much as we all would like to know what the future holds, especially for real estate, it’s not quite as simple. Surprising, I know. Too complex is the melange of global economics, socio-economic developments and hyper-local policies to make surefire predictions about what’s the brick and mortar equivalent of a mini-skirt. Midriff, but make it a midcentury bungalow. Yet, here we are. After last week's grandiose announcement that we would serve you trends we have to deliver I guess. So what’s the runway of the financial world? The place to start looking for evidence of what’s going on, something to then piece together for hot takes and answers? While the runway metaphor is actually terrifyingly accurate for Wall Street (more slacks and vests, less solar power colours, even though Vogue does claim that you may, in fact, wear them to the office and the nail salon (!)) - that’s not where we’ll go this time. We are going to stay closer to home and read a bit of German news. Covid, obviously, will make an appearance, too.
But we digress. Let me just spell it out and then explain our (somewhat familiar sounding?) trend prediction: We call it “Urbanisation? It depends!”. There you have it. 2022 in real estate, in trends, summed up.
So why does it all depend, again? Allow me to explain, or better yet, give you a sufficiently crazy metaphor to illustrate how we are thinking of real estate in 2022: Basically, think of two heavyweight boxers of trends, battling it out over where this show goes. Currently, they both seem to have about even odds at winning. On one side of the ring, you have the seasoned contender called “urbanisation”. The audience knows this guy well, he’s been on the scene for decades. We all know this: In cities, money, services, wealth and opportunities are centralised. Many rural inhabitants come to the city to seek their fortune and hope for a better life. Living in a city can be culturally and economically beneficial since it can provide greater opportunities for access to the labour market, better education, housing, and safety conditions, and reduce the time and expense of commuting and transportation. It is predicted that by 2050, about 86% of the developed world will live in urban areas. While Germany has no London or Paris (yet), the trend certainly goes in that direction.
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And yet - in the opposite corner - awaits an opponent that has burst onto the scene in recent times, raring to go. Will he walk away victorious? He just might … especially because he’s the multi-headed Hydra, a monster of two sub-trends that have combined forces to really challenge the notion that, over time, everyone will be living in an urban center. On the one hand, prices are proving to be prohibitive. It’s quite simple, really. If more people want to move to the city and housing supply just can’t keep up fast enough, prices will go up. We are seeing this in places around the world (exhibit A, B and C) and at some point, no matter how badly you want to live as close to the downtown Starbucks as you can, you just can’t afford it anymore. Secondly, and this is where Covid comes in (does it ever not come in these days?) - the world of work has changed fundamentally over the last two years. What we once thought to be the unshakable truth of the business world - you go into an office to work and earn your salary - has proven to be pretty shakable after all. The virus has forced employers and employees alike to be more flexible and the former have realised that they might actually like it! If you have always dreamt of owning a home and that home doesn’t have to be physically close to the office anymore … all of the sudden, you have opened up an entirely new market for yourself - one that allows you to escape the shackles of the rising prices we mentioned just a minute ago. #lifehack
Real estate financing company Interhyp (of course they would have all the data!) has seen this play out in real time and the numbers are pretty obvious: Take those living in Hamburg, for example, a big city. Used to urban life, their real estate purchases happened in places with more than a half million people in 56% of the cases before Covid. Now, in 2021, that number has dropped down to 49%. That means that the percentage of those buying (and probably living in) a property away from the big, urban centers they once called home has increased by a whooping 7 points.
In fact, Hamburg might be the first city to really see the effect of fighter I losing a bit of steam: while prices for real estate have increased steadily for years (a flat would have been 9.7% more expensive in 2020 than just the year before on average!) - analysts at Deutsche Bank see a reversal looming. The city is only growing at a moderate pace and housing policies have steadily increased supply - meaning that the seemingly never ending spiral of increasing real estate prices might come to an end as soon as this year and definitely sooner than in other places. So how’s that fist fight looking now?
Let’s summarise, for the people in the back (and to double check that what I am telling you actually makes sense):
Generally, the drive towards urban centers has been pretty unstoppable
Because of insane prices in big cities, that drive was tested recently
Covid has further allowed for folks to contemplate more rural options, especially since prices have been so prohibitively high (see point 2)
We will see whether this effect plays out in real time with prices dropping in places like Hamburg - to be honest, personally I think they might just climb less quickly?
And that, friends, is “it depends, featuring a German city near you”. Trend 1. But what does it all meeeeannnheaan, you ask? Well, as always, all I can do is to humbly tell you what we are taking away from it:
There’s arguments for either side - I mean, we have just made those, so believe us, we know. You could probably confidently invest in “the right object” in a big city and be perfectly happy with said investment - or, just the opposite, buy a much more affordable place in a smaller town and be just as content. The main point: you need to have a STRATEGY! You need to ask yourself questions and find answers that work for your particular situation and then build a strategy and stick to it.
As for us, that strategy’s name was “big city” - at least up to this point: Investing in real estate in big cities certainly served us well. We have never, ever had an issue with finding new tenants and I think the demand in an urban environment has something to do with that. To be honest, to invest in cities (as opposed to rural areas) is a decision I would make over and over again. At the same time, we are certainly feeling the pressure of increasing prices now that we are starting to look again (in earnest), meaning that Berlin, Hamburg, Munich and Frankfurt will very likely be out of range. We’ll do a much bigger post on how we are going about researching the perfect location to branch out a bit - but for now, suffice to say we’ll very likely find ourselves going into a medium sized city. Dressed in solar colours, but midriffs squarely covered. You don’t need to go with every trend after all.
Next week, on Rente aus Stein: Trend No 2 in our big beginning of the year trend watch. You might think it’s an obvious one, but is it? Make sure to subscribe to not miss this.
Disclaimer: We are not lawyers (sadly) and as such can’t give you legal and/or tax advice. We are simply telling our story in the hope that it’s inspiring to you.