Munich: Solid Fundamental Attracting Investors

The Bavarian capital boasts mountains, lakes, culture and a stable economy. All in all, it’s one of the most liveable cities in the world. What’s not to like if you’re a property investor?

Bavarians take their beer very seriously. So, when you see the former site of the Paulaner brewery in Au, Munich is now dedicated to the construction of new apartment blocks, you know property in the Bavarian capital has become big business indeed. Despite asking prices of up to €27,000 per square meter for the most exclusive penthouses, demand for apartments on the “Hoch der Isar” site is high.

Then again, why shouldn’t it be? Munich’s charming city centre is a short stroll away. The Gasteig cultural and arts centre, currently being renovated, is at the end of the street. The district of Haidhausen, next door, offers a soupcon of French savoir-vivre. Best of all, Hochstraße, where the apartment blocks are shooting up, is situated above the river Isar, which flows down from the Alps. Residents flock to the riverbanks in the summer months to barbecue and sunbathe before cooling off in the river’s crystal- clear waters. All year round, people stroll, jog or rollerblade along the riverside paths – just one of the many expansive green spaces that Munich has to offer.

From Hochstraße, there’s a spectacular view over the compact city of Munich. On a clear day, you can even see the nearby Alps – in easy reach for hiking, skiing or mountain biking. The lakes are just a short train, car or even a cycle ride away. In fact, there’s never an excuse not to be active in Munich, whether it’s jogging through the city’s English Garden (one of the world’s largest urban parks) or even river surfing on the continuous wave created on the man-made Eisbach brook. Otherwise, you can simply watch the world go by in a beer garden or visit one of the city’s world-renowned art galleries.

All in all, the prosperous Bavarian capital enjoys some of the best quality of life in the world, with booming economic growth, low unemployment (3.5%) and top living standards. In 2019, Munich tied third with Auckland and Vancouver on Mercer’s Quality of Living city ranking, which looks at how cities impact the wellbeing of global workers. And that’s no surprise, says Sebastian Dietert, Director of Fund Management at PATRIZIA.

Laptops and Lederhosen

Germany’s third-largest city is rightfully known as the ‘Millionendorf’ – the village of a million people. It offers a unique blend of ‘laptops and Lederhosen’ (leather trousers), combining high-tech innovation with time-honoured tradition, where people still proudly wear Tracht (traditional Bavarian costumes, such as Dirndl), whenever the occasion allows.

Despite its laidback attitude, Munich powers an economic and technological powerhouse. Bavaria’s gross domestic product of €633 billion in 2019 puts it ahead of 22 of the 28 European Union member states.

As one of Germany’s fastest growing cities, Munich attracts global players from a broad industrial base. It’s home to six blue-chip companies, including Siemens, BMW and Allianz. And it’s popular with young professionals, lured by the appeal of working in “Italy’s northernmost city,” which lies in the most stable region of Germany.

On the PATRIZIA Living Cities Index 2021, Munich ranks in fourth position from 119 European cities as attractive places to invest. It is highly ranked for innovation (third), and economy and connectivity (seventh). It is judged to be a powerful city with a very liquid residential market.

Expensive, but worth it

Ready to move there yet? One note of caution – wherever you look in Munich, accommodation doesn’t come cheap – rent here is among the most expensive in Germany. The ongoing economic boom has helped fuel rocketing housing prices, aggravated by density restrictions.

Au and Haidhausen are just two of Munich’s sought-after areas. Rents and prices have risen significantly across the city since 2014, but particular hotspots also include Schwabing, Lehel and Bogenhausen, where apartments can cost up to €20,000 a square metre. Here, you can find elegant Jugendstil buildings or Baroque and Rococo architectural gems.

Those seeking a more modern feel could seek out an apartment in one of the city’s bourgeoning urban developments, such as in Munich’s West End. Meanwhile, those with €4 million to €16 million to spend, could splash out on an exclusive villa in pre-Alpine Grünwald or Starnberg, near its eponymous lake. Otherwise, there are plenty of houses with gardens in leafy suburbs, with good transport links to the city centre.

In other words, Munich may be expensive but it’s clearly worth it.

No bubble to burst

What about the future? Rising birth rates and high work-related immigration means that Munich’s population of 1.5 million is forecast to increase by 6.7% by 2028. Combined with the city’s booming economy and high employment, this equals continued high demand for housing.

Significantly, speculation about a housing bubble is rebuffed by the clear stubbornness of prices to deflate. “The Munich housing market steered clear of the slump following the 2008-2009 global financial crisis and looks like it will escape the fallout from the COVID-19 pandemic,” says Dietert.

In fact, COVID-19 is expected to push the current cycle of high demand and high prices further skywards. The pandemic has only served to further highlight Munich’s appeal, notably its generous and accessible healthcare system, stable society and low unemployment rates, as well as the attractions of a cosmopolitan, clean, safe city with an excellent quality of life.

“Yields (at an annual average of 2-3%) may be low, but there is high liquidity, and with houses in short supply, Munich is a city where property remains in demand,” concludes Dietert.

All in all, Munich is an excellent property investment market. And one that promises to keep on getting better.