Neighborhood watch

Land rush turbo boosts Rhineland real estate

Medienhafen in Düsseldorf, Deutschland
The Media Harbor, home to Düsseldorf's fashionably rich. Source: Fotolia

The Rhineland’s two biggest cities, a scant 40 km (25 miles) apart, could hardly be more different. Düsseldorf is all about high finance, fashion design and conspicuous wealth, while Cologne’s vibe is blue-collar, easy-going and media-savvy, thanks to the many broadcasters headquartered there. Residents maintain a friendly rivalry dating back to the Middle Ages, touting their respective lifestyles, soccer teams (Fortuna Düsseldorf versus FC Köln) and the merits of consuming Düsseldorf’s dark Alt beer against Cologne’s Kölsch lager.

But these feisty neighbors have a problem in common: Living space for their growing populations is in desperately short supply.

In Düsseldorf, Germany’s seventh-largest city and capital of the state of North Rhine-Westphalia, Germany’s most populous, developers are jamming residential housing into every available plot of land. City planners, aware that lower- and middle-income families could be priced out of the market, stipulate that 20 percent of all new housing must be subsidized. Another 20 percent is the “price-dampened” segment, defined as medium earners whose household income exceeds the upper limit for subsidized housing by no more than 60 percent.

A prime example is Grand Central, a €500 million ($588 million) trio of apartment blocks going up behind Düsseldorf’s main train station, on the site of an old mail-sorting center. Completion of the 1,061 rental apartments is slated for 2020. Municipal rent controls, which are revised every three years, foresee rents at Grand Central of around €10 per square meter, meaning a 60 sq meter (645 sq ft) apartment will cost around €600 per month plus utilities.

Snug around the edges

The developers, Catella, should have little problem finding tenants. Düsseldorf’s population of 640,000 is projected to increase by nearly 3 percent over the next decade, a major issue for a city with scant room to grow. Some 4,500 households are currently seeking subsidized homes, according to official data, but the actual figures are much higher. Developers’ efforts to win city approval to build on adjoining farmland, for instance in the southern district of Hamm, have so far been fruitless.

So new residential sites are wrung from cramped, unlikely locations. “The property market is so tight that workshops and garages in rear courtyards are being torn down to make way for new apartments,” said Tobias Brüggemann, a broker at real-estate firm Aengevelt.

Düsseldorf’s mayor, Thomas Geisel, met his goal of issuing 3,000 building permits per year. But on average, only 1,700 apartments have actually been built each year since 2012.

City planners are taking extraordinary measures to close the gap. Six years ago, a school in the northern district of Derendorf near Düsseldorf’s airport was relocated and the old classrooms were demolished to make way for 186 new apartments. Average rents at the Derendorf development match the municipal average of €10.90 for new tenants.

There are fewer takers for rental properties on offer above a monthly €14 per sq meter, according to a study on Düsseldorf housing by VDP Research, a real-estate consultancy. In the districts of Unterbilk, Pempelfort, Niederkassel and Lörick, where average new rents are around €12 per sq meter, rents are rising more slowly than the city average.

If you’d rather buy than rent, prices for new apartments stand around €4,500 euros per sq meter, according to Mr. Brüggemann. Note that’s only an average estimate. At the top end, some luxury apartments in Düsseldorf’s riverside Media Harbor (pictured above) fetch prices of more than €10,000 per sq meter. Clearly, until this well-to-do city throws open more land to developers, prices are most likely to go in one direction: up.

Cologne Südstadt DPA 1800px 46276120
Yesterday's favorite: Cologne's Südstadt. Source: DPA

Not long ago Cologne, the country’s fourth-largest city (population 1.08 million), was a magnet to so-called “Best Agers,” residents over 50 who ditch the suburbs for the pulsating inner city. That trend, however, has obviously reversed. VDP Research looked at rents and housing prices over the past three years, and found that increases were above average on the outskirts, particularly the south of the city.

Traditionally sought-after areas in the west and the center, within sight of the city’s iconic cathedral, have fallen out of favor. It’s a trend echoed in other German cities such as Munich and Hamburg. “Tenants and buyers are moving from central to more favorable peripheral locations – boosting housing prices and rents there,” said VDP analyst Hildegard Höhlich.

Curiously, average rents in Cologne as a whole (€11.27 per sq meter, for an apartment of 60 sq meters) are slightly higher than in its competitor to the north (€10.73). Don’t tell Düsseldorfers, but national polls usually peg Cologne as the more popular place to live, which affects rents. Nonetheless, rents in both cities are more than 50 percent cheaper than in Munich, Germany’s most expensive metropolis, according to the online statistics portal Statista.

Over the years, residential construction has plugged the remaining plum spots in Cologne’s more central areas, including the lively Belgian Quarter, Agnes Quarter and Sülz, as well as scattered hotspots including Südstadt, Lindenthal and Nippes. Prices in these districts rose faster than average before flattening out in 2017, and should remain steady for the foreseeable future, said Reinhold Knodel, boss of Cologne developer Pandion.

Industrial chic

Three of Pandion’s stylish Kranhäuser – exclusive residential towers evoking the loading cranes of Cologne’s river shipping heyday – dominate the banks of the Rhine just south of the cathedral. But as prices leveled off in the area, the developer turned its sights to Ehrenfeld, an old freight railway hub to the northwest, where the firm plans to build another Kranhaus to hold 250 (pricey) apartments.

Cologne’s homebuyers, discovering cheaper land on the city limits, have taken a shine to the Mülheim industrial district on the eastern bank of the Rhine, where 480 apartments are emerging at an old factory site. Nearby, in a former working-class area called “schäl Sick” – named for the “wrong side” of the river – house prices jumped more than 10 percent last year. Despite the recent surge in interest, these properties still cost well below the lofty sums of €4,000-plus per sq meter that are common on the popular western side.

Options will continue to widen if more prospective owners warm to their rustbelt surroundings. The next prestigious real-estate project is said to be in the planning stages at Deutz, a creaking riverport facility opposite the cathedral – on the wrong side of the Rhine.

Reiner Reichel covers real estate and capital markets for Handelsblatt. Anne Wiktorin reports on finance and real estate from Düsseldorf. Jeremy Gray, an editor for Handelsblatt Global, contributed to this article. To contact the authors: reichel@handelsblatt.comwiktorin@handelsblatt.com, and j.gray@handelsblattgroup.com

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