Index rents are rising: What does this mean for Germany’s tenants?

Index rents are rising: What does this mean for Germany’s tenants?

In Germany, a current study by the German Economic Institute (IW) shows that the issue of index rents remains of little importance. In 2024, index leases will only account for 2.6 percent of all leases. This figure marks a slight increase from 2.1 percent in 2022 and 2.3 percent in 2023, indicating that the penetration of this form of rental remains stable for now. However, the dominant form of rental agreement remains the permanent rental agreement, which accounts for the majority at 92 percent. This allows the rent amount to be adjusted up to the local comparative rent, which is important for many tenants. The evaluation is based on data from a panel with over 5,000 participating tenants.

An interesting observation is that index rents are more common in new buildings, where the proportion is 9 percent. In the seven largest German cities, including Berlin, Hamburg and Munich, the proportion of index rental agreements has even risen to 4.1 percent. In new buildings in these metropolises, the proportion of index rents will be 18.8 percent in 2024. Index contracts that link the rent level to the development of inflation are therefore becoming more important in certain segments. This study is considered one of the first nationwide surveys on the spread of index rents and creates a valuable basis for future analyses. company today reports that the database of this study offers a wide range of insights into the current rental landscape in Germany.

Rising rental prices in big cities

While index rents are still a marginal phenomenon in Germany, rental prices are a pressing problem, especially in large cities. Rents have been rising continuously for over a decade in cities such as Munich, Frankfurt and Leipzig. The housing market is very tight and the supply of affordable housing is becoming increasingly scarce. Loud FTD Net rents in Germany increased by an average of 64 percent between 2010 and 2024. The rental price index of the Federal Statistical Office recorded 107.5 points in 2024, which corresponds to an increase of 7.5 percent since 2020.

A look at the average rents in selected cities shows the drastic price increases:

The forecast for 2025 suggests that rents will increase by 4 to 5 percent. This could lead to the nationwide rental price index rising to €11.40/m². The political aim is to create around 400,000 new apartments by 2024, but only 260,000 have actually been built. Construction costs have increased significantly since 2021, with +34 percent in material prices and +18 percent in wages. In order to counteract the more tense market situation, proposals such as more construction projects and subsidized housing are being discussed, as low-income households are particularly hard hit.