Berlin - While the corona pandemic likely won't halt rent increases in most major German cities this year, Berlin may see a decrease - at least according to property site Immowelt's latest forecast for cities with more than 500,000 inhabitants.

According to the forecast, the asking rent for existing flats – the prices in apartment listings – will continue to rise this year in 11 of the 14 cities surveyed. Hamburg and Berlin, by comparison, are expected to fall 1 per cent and 5 per cent, respectively. 

"Interest in real estate is greater than ever before, and supply - especially in the affordable segment - is still modest," says Immowelt CEO Cai-Nicolas Ziegler. "We don't believe the trend will reverse this year, although prices won't rise as much as in the previous years."

In Hamburg, new construction and saturation effects are slowing demand while in Berlin the rent cap, or Mietendeckel, is keeping prices lower. The asking rents for existing flats in Berlin fell by 8 per cent from 2019 to 2020, according to Immowelt. After a further decline, the portal predicts Berlin "cold" rents – basic rent without utility costs – will stablise at an average of €8.70 per sqm by the end of 2021. Before the cap , €11.10 was commonplace.

Munich tops the league

The report also points out side effects of the Mietendeckel law: the share of cheaper old flats has fallen sharply while the percentage of expensive new buildings, which do not fall under the rent cap, is rising. landlords are suspected of either leaving flats empty until a ruling Germany's Federal Constitutional Court, expected by this summer, or opting to instead convert the flats into condominiums for sale.

In Munich, Germany's most expensive city, a rent freeze initiative was ruled inadmissible by the Constitutional Court last year. Nevertheless, according to Immowelt, the price curve in the Bavarian capital is flattening - albeit at a high level. After the steep increases of recent years, asking rents for existing flats are expected to rise by a mere 1 per cent, up to an average of €16.10 per sqm by the end of the year - meaning Munich will retain its position as the most expensive rental city in Germany.

Frankfurt comes in at second place, with rents forecast to increase by 3 per cent this year, bringing the average price to €12.20 per sqm. Stuttgart is hot on Frankfurt's heels with a 6 per cent rise in 2021 to €12.10 per sqm. Immowelt expects a 5 per cent bump in Leipzig, but it remains a bargain compared to western cities, with an average sqm metre price of just €6.80 forecast for the end of 2021.

Prices for flats in new buildings aren't affected by Berlin's legislation. They're already expensive and are expected to decouple even further from prices for existing properties over the course of the year, with such rents expected to rise by 6 per cent, while prices for existing flats are falling. A new-build rental should cost an average of €13.20 in Berlin.