Rental yields are growing fastest in these cities

Which cities are seeing the strongest growth in rental yields and which factors play a role. Find out more about the top locations and their development on the real estate market.

PROPERTY VALUATION

This is where rental yields are growing most strongly

The rental yield is an important indicator of the profitability of real estate investments, as it sets the annual rental income in relation to the acquisition costs. A current analysis based on data from the ImmoScout24 WohnBarometer shows in which cities rental yields have developed particularly positively.

“Buying real estate remains an attractive investment opportunity. It is increasingly worth looking at cities away from the major metropolitan areas. Smaller cities in particular are characterized by moderate purchase prices. They not only offer high rental yields, but also allow investors with less capital to enter the market,” explains Dr. Gesa Crockford, Managing Director of ImmoScout24. “University cities and B and C locations also offer worthwhile opportunities – both for existing properties and new builds.”

An analysis by ImmoScout24 from May 2024 already showed that investments in medium-sized cities promise the highest returns. The cities with the highest yield growth offer an average rental yield of 5.1 percent. In comparison, the eight largest German metropolitan areas only achieve an average rental yield of 3.5 percent for existing properties and 3.2 percent for new buildings – an increase of just 0.4 percent over the last five years. Significantly higher yields can be achieved in B and C cities, where the rental yield for existing apartments is 4.0% (+0.5 percentage points). These cities also have the best new-build rental yields, which stand at 3.4% and have risen by 0.5 percentage points since 2020.

Medium-sized cities offer particularly strong growth opportunities

Hoyerswerda in Upper Lusatia tops the list of cities with the highest growth in rental yields. Here, the yield is an impressive 6.8% and has risen by 1.1 percentage points since 2020. The recent more positive development in the number of inhabitants, which is above the original forecasts, is also particularly noteworthy. As a medium-sized city, Worms is also showing strong momentum: the yield on existing properties rose by 0.9 percentage points to 4.1%, while new builds recorded a development of +0.5 percentage points to 3.8%.

While rental yields for existing properties in cities with fewer than 50,000 inhabitants are already showing a particularly positive trend, growth in new builds is primarily being seen in larger medium-sized cities with more than 80,000 inhabitants. Landau in der Pfalz, known for its high proportion of students, is leading the way here. The rental yield for new-build apartments there is 3.4% and has increased by 0.6 percentage points since 2020.

Good yield development in Berlin, Frankfurt and Cologne

The metropolitan areas with the highest rental yields are also recording the strongest growth. Cologne leads the field for existing properties with a rental yield of 4%, which corresponds to an increase of +0.6 percentage points since 2020. Berlin shows the highest growth in new construction with a rental yield of 3.6% (+0.7 points). In Frankfurt am Main, the rental yield for both existing and new-build apartments is 3.4%, with an increase of 0.6 percentage points in each case. Munich also recorded yield growth of 0.6 percentage points, but has one of the lowest rental yields of the top 8 metropolitan areas.

For real estate investors, smaller cities with fewer than 600,000 inhabitants offer an attractive alternative to the major metropolitan areas. This is not least due to the lower prices: For existing properties in the five cities with the best yield development, you pay an average of EUR 2,846 per square meter. This is less than half the price paid in the top 8 metropolitan areas (average EUR 4,937).

A particularly positive trend can be seen in the university city of Jena, where the rental yield has risen by 0.7 percentage points to 3.8 percent. Yields of more than 4 percent were also recorded in Bremerhaven and Kaiserslautern: Bremerhaven has an increase of 0.5 percentage points to 4.4 percent, Kaiserslautern an increase of 0.4 percentage points to 4.5 percent.

Hanover recorded the largest increase in yields for new builds, with a rise of +0.8 percentage points to 3.7%. Strong growth can also be observed in Offenbach am Main, which stands out due to its proximity to Frankfurt and significantly lower prices: Here, the rental yield is 3.6 percent, with an increase of 0.7 percentage points since 2020. Real estate investments are also significantly cheaper in Offenbach compared to major cities.

Methodology

For the analysis, the asking purchase price of condominiums was compared with the asking rent for apartments on ImmoScout24. In total, the prices of 716 cities with more than 20,000 inhabitants were taken into account. Metropolitan cities are cities with more than 600,000 inhabitants, large cities include cities with 100,000 to 600,000 inhabitants, and medium-sized cities are cities with a population of between 20,000 and 100,000 people. The gross rental yield is the ratio of the purchase price (excluding ancillary purchase costs) to the annual cold rent. The data on asking rents and asking purchase prices in the major cities comes from the ImmoScout24 WohnBarometer and relates to the first half of the year from 2020 to 2024.

About ImmoScout24

ImmoScout24 is the leading online platform for residential and commercial real estate in Germany. ImmoScout24 has been changing the real estate market for 25 years and is a central point of contact for around 19 million users who search for a new home or suitable commercial space on the online marketplace or in the app every month. Around 90 percent of the target group are familiar with ImmoScout24. With its digital solutions, the marketplace offers guidance and successfully connects owners, agents and property seekers. ImmoScout24 aims to process real estate transactions digitally in order to make complex decisions easier for users. ImmoScout24 has also been active on the Austrian residential and commercial market since 2012 and reaches around 3 million searchers there every month.