berlin residential investment market · 2015-08-24 · berlin ranges in third place among the...

Berlin Residential Investment Market News Update on Berlin’s Rental Housing Market September 2013

Berlin News

Construction Making an Impact Berlin's housing market is showing first signs that the

strain is easing: According to an analysis of the IVD

Federal Investment and Asset Management

Association, the accelerating housing construction

has already impacted rent rates. Similarly, the real

estate price indices of empirica and the

ImmobilienScout24 real estate portal show: The

times of steep rent hikes are over.

More Completions in 2012

A recent publication by the Federal Statistical Office

put the number of flats completed nationwide in 2012

at 200,500, a clear increase year on year.

Specifically, the one-year growth equalled 17,400

flats or 9.5 percent. Berlin is reporting a similar trend:

As the Berlin-Brandenburg

Statistics Office stated, more than

5,417 flats were completed in the

German capital in 2012 – an

increase by 20.6 percent year on

year.

Construction Puts Damper on

Rental Growth

The IVD recently determined that

the increased housing stock has already checked the

uptrend of rent rates. According to the IVD

Residential Rent Table annually compiled by the real

state association, rents on new leases are currently

at 6.90 euros per square metre. This implies an

increase by 20 Cents per square metre, or around

three percent within the past twelve months. In the

case of rents on new leases in preferred locations,

the square metre rent was even slower to rise: It

climbed from 8.20 euros / sqm to 8.40 euros / sqm,

an increase by just 2.4 percent. During the same

period last year, rents in either location rose by eight

percent.

The empirica real estate price index reached a similar

conclusion, if for Germany as a whole. It suggests

that, compared to the second quarter of 2012, rent

rates in Q2 2013 thus rose by 3.3 percent. Quarter

on quarter, though, empirica diagnosed stagnation.

Similarly, the IMX real estate price index by the

ImmobilienScout24 real estate portal reveals: In July

2013, asking rents in Berlin

climbed by a mere 0.5 percent

month over month. In the cities

of Frankfurt, Cologne, Munich

and Hamburg, the IMX actually

registered softening rents.

IVD: More Housing

Construction Needed in

Berlin

The IVD interprets the latest rental trend as a clear

sign that housing construction is the only long-term

solution against brisk rental growth. That said, the

association added that the number of flats completed

to date is far from enough – Berlin urgently needs

additional flats.

Housing completions (in 000s) in Berlin, 2006 through 2012

– Number of Completed flats Source: Berlin-Brandenburg Statistics Office

Berlin Residential Investment Market – Issue 5 / September 2013 2

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“Flats in Berlin's bottom market segment

will remain in demand.” _____________________________________

Interview

with Jörg Schwagenscheidt,

GSW Immobilien AG

“No End in Sight for the Uptrend” Rent rates in Berlin have soared in recent years.

According to the 2013 Housing Market Report by

GSW / CBRE, asking rents rose by 13.8 percent in

2012. With this in mind, is an investment still a

paying proposition? Yes, it is, says Jörg

Schwagenscheidt, the Co-CEO of GSW

Immobilien AG. He also told us which boroughs

and which market segments have the highest

appreciation potential.

Mr Schwagenscheidt, the IVD Federal Investment

and Asset Management Association determined

that the accelerating housing construction in

Berlin has caused rental growth to slow in Berlin.

Is the end of the upward trend in sight for Berlin?

We see no signs for an end to this trend. Rather, we

assume that rents in Berlin will keep pushing up in

the coming years. The key reason is the growing

population. The rental growth dynamics will

admittedly slow down in the medium term, slowed by

the rise in construction. But this does not mean that

the current construction volume will suffice to

accommodate the housing needs of Berliners in the

coming years.

What does this mean on the borough level? What

are the trends you have identified?

Especially the popular inner-city wards have begun to

show signs of saturation. Here, the housing demand

will remain high because of the strong inflow of new

residents. Households with lower incomes are

relocating to outlying districts beyond the rapid-transit

circle line and to the suburbs. There, the costs of

living are obviously lower than downtown. Also, you

still find reserves on the city's periphery.

What do you make of the plans by some political

parties to cap (or keep capping) rents in

Germany?

I find them very ominous. Then again, this is an

election year and housing is always a good subject

for drumming up support. Personally, I do not

consider it a good idea at all to keep capping rents.

The effect of such regulation is that it scares off

investors otherwise willing to build homes in Berlin.

The only way to remedy the contraction of the

housing supply, however, is to build more homes.

The price level in Berlin has pushed up in recent

months – where would you say is it still

worthwhile to invest?

The boroughs of Neukölln, Lichtenberg, Schöneberg

and Wedding, among others, are still defined pent-up

demand and offer interesting investment

opportunities. In recent years, investments were to a

large degree limited to high-end residences in

downtown Berlin. Lately, the focus has begun to shift,

as many investors show keener interest in the lower

market segment. This mirrors the expectation that

this residential segment will remain very much in

demand and that investments will pay off accordingly.


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“More and more young, creative

people and an increasing

number of risk-sensitive people

choose to realise their dream of

their own business in Berlin.” _____________________________________

Column

Boomtown for Young

Entrepreneurs by Dr. Rainer Zitelmann

According to the official

statistics on business start-

ups, every 20 hours on

average a new Internet

company is set up in Berlin.

A survey recently published

by IBB Investitionsbank

Berlin suggests: Last year, the

German capital took the lead

among the major German cities in

the context of the digital economy,

with 469 new business start-ups or

2.8 new businesses start for every

10,000 gainfully employed persons.

Between 2008 and 2012, the

number of newly formed Internet

companies in the German capital

rose by more than 44 percent. Conversely, all other

major German cities reported substantial drops in

the number of start-ups. With a gross value added

of 3.9 billion euros, the Internet sector as a whole

contributed a share of 4.2 percent to Berlin's total

economic output. For the sake of comparison:

Berlin's building trade generates an economic

output of 3.3 billion euros or 3.7 percent.

The number of people working in Berlin's digital

economy totals 62,400 – and more than one out of

five is self-employed. The sector's turnover grew

even faster than the number of businesses. While

the latter increased by 16.5 percent between 2009

and 2011, the turnover for the same period of time

rose by 21 percent to nearly nine billion euros.

Berlin is developing more and more into a

boomtown for young entrepreneurs and is

considered the most attractive location for the

Internet scene. Co-founder and chairman of the

supervisory board of SAP, Hasso Plattner, quipped

recently that his company should commit itself more

in Berlin: “In Germany, SAP should bank much more

heavily on the Berlin card. You simply reach a

different crowd here. Fact is that young people

prefer to spend the next years in the big city.” The

SAP founder conceded that Walldorf near

Heidelberg, the company's seat, is “slightly out of

the way.” Honestly: Would you choose a career with

SAP because it is seated in Walldorf or not rather

despite the backwoods

location?

Be that as it may: Berlin is

attractive mainly for young

people – and the demographic

trend suggests as much. “The

increased inflow of young

people appears to be bearing

fruit,” the BERLINER

MORGENPOST recently

wrote. “The majority of those moving to Berlin is

aged between 20 and 30. Those who migrated here

a few years back have settled down in the

meantime and started a family.” As a result, Berlin

has registered a positive birth rate since 2007,

defying the national trend.

At the same time, incoming migration is accelerating

– and is now higher than ever. What matters,

though, if you ask me, is the type of people who are

attracted to Berlin. More and more young, creative

people and an increasing number of risk-sensitive

people choose to realise their dream of their own

business in Berlin. It goes without saying that all of

this is very good news indeed for Berlin's residential

property market.


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“Berliner Immobilienrunde” Special Event in Berlin on 07 November 2013

Europe's Leading Boom Market – Berlin 2014 Berlin is the world's second-most popular metropolis among international investors – far ahead of London, Paris, or Moscow (PWC / URL 2013). Berlin is the no. 1 in project developments in Germany – ahead of Hamburg and Munich (BulwienGesa 2013). Berlin ranges in third place among the world's most sought metropolises for new market entries in the retail trade – ahead of Paris, Tokyo, London and New York (CBRE 2013). Berlin is running out of office space – due to the relocation of new Internet and media firms to the city. Berlin's transaction market for apartment buildings is larger than those of Munich, Hamburg, Frankfurt and Cologne combined. In a word: Berlin is Europe's leading property boom market. Speakers:

Stefanie Frensch, HOWOGE Thomas Keindorf , mfi management für immobilien AG

Jörg Schwagenscheidt , GSW Immobilien AG

Axel Dyroff, of Schultz und Seldeneck, attorneys at law

Stefan Klingsöhr, Klingsöhr Group Rabin Savion , ADO Properties

Yaron Zaltsman , ADO Group Helmut Kunze, NCC Germany

Dirk Moritz , Moritz Group

Please request your copy of the program at: [email protected]

“Berliner Immobilienrunde” Special Event in Berlin on 23 September 2013

The German Market for Apartment Buildings and Resid ential Portfolios The interest in apartment buildings and residential portfolios among institutional investors and family offices remains as high as ever. But what about the supply side? And is the buy-and-hold strategy still a paying proposition, or should buyers of housing estates and apartment buildings shift their focus to value levers such as privatisation and redevelopment? Which business models still turn a profit? And what impact is the rent control debate having on the earnings expectations of buyers? This seminar will draw on hands-on examples by investors and simultaneously provide an exhaustive overview of the latest market data on residential portfolios and apartment buildings. Previous events on the subject scored average attendee ratings between 1.4 and 1.9. Speakers:

Christian Schulz-Wulkow , Ernst & Young Real Estate GmbH

Jacopo Mingazzini , ESTAVIS AG

Dr. Daniel Piazolo , IPD Investment Property Databank GmbH

Dr. Wulff Aengevelt, Aengevelt Immobilien GmbH & Co. KG

Frank Wojtalewicz, d.i.i. Deutsche Invest Immobilien GmbH

Jürgen Michael Schick, MRICS

Sven Keussen, Rohrer Immobilien GmbH Arndt Krienen, Westgrund AG

Please request your copy of the program at: [email protected]


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“Is it not bigoted if lawmakers raise

transaction costs, insofar as they are

subject to their control, by several

hundred percent and then eliminate

the freedom of contract for estate

agents, whose brokerage fees have

remained unchanged?”

Market Trends

Capping Estate Agent Fees? by Jürgen Michael Schick, MRICS

At the start of next year, Berlin will

raise its real estate transfer tax

once more. This time around,

though, the Christian Democrats

in the city's parliament had the

brilliant idea to keep transaction

costs level for buyers and to

allocate the one-percent increase in real estate

transfer tax to the estate agents instead by reducing

their fee by one percentage point by law. Except for estate agents, no

one will lose any sleep over it,

and some may actually rejoice.

So let us disregard the

concerns of estate agents for a

moment – which I happen to

represent in the IVD Federal

Investment and Asset

Management Association – and

take a close look at what

happened:

Transaction costs are to be raised for all property

buyers and at the same time the estate agent's fee

is to be lowered for a minority of buyers. Roughly

half of all property acquisitions and dispositions are

transacted without an estate agent, so this group of

buyers will not benefit from the “relief” at all.

The other half of the transactions is by no means

automatically subject to a brokerage fee of six

percent plus VAT. The fee for large transactions

tends to fall noticeably short of the statutory ceiling

now contemplated by the Christian Democrats. So

even if the idea is actually implemented, only a

minority of property buyers stand to benefit from it,

whereas the increased real estate transfer tax

affects all.

Could it be that estate agents fees have

experienced such hefty increases in recent years

that lawmakers need to step in? Or could a case for

intervention be made because fees are as

exorbitantly high as in other sectors, such as in the

brokerage of private health insurance? Neither of

these arguments holds water because estate

agent's fees have not changed in decades.

What has changed in Berlin is the raised real estate

transfer tax, and substantially so. Having stood at

two percent at the end of 1996, it has since gone up

to six percent – a 200-percent tax hike in less than

two decades. Is it not

bigoted if lawmakers raise

transaction costs, insofar as

they are subject to their

control, by several hundred

percent and then eliminate

the freedom of contract for

estate agents, whose

brokerage fees have

remained unchanged?

No one is forced to commission an estate agent.

Indeed, many buyers or sellers treat without one.

Whenever a buyer or seller decides to hire an estate

agent, he or she tends to be motivated by the hope

that the agent's services will generate considerable

value-add. The idea is to hire a real estate expert

well familiar with the market and with plenty of

experience in local marketing, in negotiations and in

the legal facts involved. So it is a professional

services for which the brokerage is paid, just the

ways it is with any other service – such as head-

hunting – except that estate agents' fees are among

the most modest of service rates. This is the freedom of contract that the centre right

politicians seek to curb. It is an unusual initiative for

a party that pays homage to Ludwig Erhard and a

socialised market economy whose principal


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The area called City West is largely located in Charlottenburg. Other districts it extends into

include Wilmersdorf, Schöneberg and Tiergarten (source: Fotolia)

foundation is the freedom of contract. So it is to be

hoped that the twisted logic will be abandoned as

quickly as it was concocted. Otherwise, it might

become the model for similar schemes: Lawmakers

could make a habit of raising taxes while promising

to relieve their constituency in other ways, e.g. by

putting a lid on the fees charged by private services

providers.

Portrait of a District: City-West

Go West – Again Berlin is, and always has been, in a state of constant

flux. The city is dotted with cranes, entire new

districts are created from scratch, historic streets are

modernised and new buildings are raised

everywhere. This is true even and especially for the

area called “City West.”

Once the heart of West

Berlin when the city was

still divided, it has lately

moved back into the focus

of project developers. Quite

a number of major building

projects are currently under

development, on a level

with the Waldorf Astoria

Hotel, which was

completed earlier this year.

Large volumes of retail and

office space will come on-

stream in Berlin’s western

downtown. At the same time, housing construction

has picked up steam in the city.

Business Centre with an Eventful History

The area called City West is shopping boulevard,

promenade, research centre, cultural hub, residential

district and commercial centre all wrapped into one. It

includes the high-end retail locations of

Tauentzienstrasse and Kurfürstendamm, renowned

far beyond the city limits, and Breitscheidplatz with its

landmark, the Memorial Church. City West extends

from Tiergarten in the north, Lietzenburger Strasse in

the south, Stuttgarter Platz in the west and Urania in

the east. Most of it is located in the district of

Charlottenburg though parts of it are located in the

districts of Wilmersdorf, Schöneberg and Tiergarten.

It looks back on an eventful history and remains one

of the preferred tourist destinations. The current

boom is not the first one

for Berlin's western

downtown, which had its

heyday in the late 19th

century. Known as the

“New West” during the

Belle Epoch, it grew into

an ever more popular

shopping and leisure

area, competing

increasingly with the old

town centre of Berlin-

Mitte. It was during this

time that the famous

Kaufhaus des Westens

department store (KaDeWe) was raised. Following

the Great War, the City West moved centre stage

during the Roaring Twenties. Its streets turned into

catwalks for the flapper chic. Film actor and director

Max Reinhardt built two elegant theatres on

Kurfürstendamm and large cinemas such as

Marmorhaus, Capitol, and Ufa Palast dominated the

great era of silent film. The area experienced a

revival during the Cold War as the city centre of post-

war West Berlin.


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With the fall of the Berlin Wall, the “New West” lost its

status as the heart of the city. While

Tauentzienstrasse and Kurfürstendamm continued to

count among the city’s high-street locations and

commercial hubs, it lost much of its former appeal. By

the late 1990s, the area actually seemed to

deteriorate, prompting debates whether to raze some

of its former landmarks, such as Kudamm-Karree and

Europa-Center.

High-End Development Projects in City West

It proved to be just another temporary crisis and the

district coped splendidly: Today, City West is

booming. Early this year, the BERLINER

MORGENPOST ran the headline: “Berlin’s City West

Celebrates its Comeback”. Indeed, it is Berlin’s up-

and-coming high-street retail location – once again.

Aside from the KaDeWe, which has never had a dull

moment, luxury brands and international multiples

have set up shop along Kurfürstendamm and

Tauentzienstrasse.

The redevelopment of the Bikini building across from

Memorial Church will be the next major shopping

venue to go live. Originally raised in the 1950s on

Budapester Strasse, Bikini House was acquired by

Bayerische Hausbau in 2002 and is being turned into

a shopping mall and event centre. Out of the gross

lettable area of 51,000 sqm, about 17,000 sqm are

earmarked as retail space. Moreover, “Bikini Berlin”

will provide office accommodation and leisure

venues, including a cinema and a rooftop terrace of

7,000 sqm. The complex is scheduled to open in the

fall of 2013.

Another large-scale construction project in the district

is the UPPER WEST, initially called Atlas Tower. This

mixed-purpose building is raised right on

Breitscheidplatz and will be 118 metres tall. Project

developer STRABAG Real Estate already signed a

lease with the Motel One chain as one of the future

anchors. A special highlight of the building will be the

Sky Bar on the top floor. Aside from the floor area

reserved for hotel and office units, the complex will

include 5,500 sqm of retail space.

City West can pride itself on an active regional

management that keeps promoting the area with the

stated intention to establish it permanently as a

business district. For instance, the Regional

Management Berlin West is developing strategies for

revitalising Ernst-Reuter-Platz. And its “Kluge Köpfe”

(“Bright minds”) initiative scouts for innovative ideas

in the communication, marketing and media sector.

The “Aktives Zentrum” subsidy program moreover

sponsors a variety of structural upgrades.

Kurfürstendamm remains a popular tourist

destination and high-street retail hub (photo: shutterstock Bocman1973)

Memorial Church is one of the most popular

sight in downtown West Berlin (photo: Fotolia)


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Another building project that promises to advance the

ongoing facelift of City West is the “Quartier am Zoo”,

a new residential and business quarter. The plans

call for a 160 metre residential and commercial high-

rise plus another five buildings of varying heights

between 60 to 100 metres on a 120,000 sqm

brownfield site between Zoologischer Garten railway

station and Landwehrkanal. The planning was due by

the architect Jan Kleinhues and the town planner

Florian Mausbach, the former President of the BBR

Federal Office for Construction and Regional

Planning. The project has drawn mixed responses.

While the government welcomes the construction of

new housing, the Berlin University of Technology

objects that the site had actually been earmarked for

a new university building.

Education and Culture in the City West

Berlin’s western downtown, however, is much more

than a business hub, as a look at its educational and

research facilities shows. The Charlottenburg

campus counts among Europe’s largest

uninterrupted inner-city campus areas. Hosting both

the Berlin University of Arts and the Berlin University

of Technology, it is home to two major international

universities. Four institutes of the Fraunhofer Society

and a large number of cultural facilities provide

perfect conditions for the 34,000 students enrolled in

both universities.

Positive Demographic Growth

City West is becoming ever more popular as a

residential quarter. In addition to its vast retail

spectrum, residents and visitors also benefit from a

superb infrastructure: Zoologischer Garten railway

station, in addition to providing regional service

connections, is also frequented by underground and

rapid transit lines. The parklands of Tiergarten, which

mark the north-east boundary of City West, offer

ample opportunity for recreational pursuits and serve

as counterweight to the hustle and bustle of busy

streets. The Borough of Charlottenburg-Wilmersdorf, which is

home to the largest part of City West, registered

demographic growth to the tune of 3.1 percent

between 2007 and 2012. The fact that City West has

become a particularly popular place of residence is

reflected in the local rent rates. According to the 2013

Housing Market Report by GSW / CBRE, asking

rents in almost every part of City West exceeded the

Berlin median. The neighbourhoods of Sybelstrasse,

Olivaer Platz and Ludwigkirchplatz clearly take the

lead: Here, the going rack rent is 10.00 euros per

square metre. Other locations with high square-metre

rents of just under 10.00 euros include the wards

around Savignyplatz (9.88 euros / sqm),

Winterfeldtplatz (9.46 euros / sqm), and Viktoria-

Luise-Platz (9.24 euros / sqm).

KaDeWe on Tauentzienstrasse – a department

store and shopping magnet steeped in tradition (photo: shutterstock andersphoto)

Rental growth (cross -segment median) in the priciest locations of City West, 2008 through 2013

Source: GSW, CBRE


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Apartment Buildings of the Month

Typical Kreuzberg Property in Good Location

The property offered for sale here is located in the popular Kreuzberg district. Surrounded by a

rich variety of green areas, this centrally located and yet quiet property offers outstanding

recreational options and a cornucopia of trendy gastronomy. Access to public transportation is

great. The residential and business building was raised around 1912. Few of the units are

smaller than 140 square metres. The average rent rate comes to 3.61 euros / sqm. There are

altogether 30 units, the basement being let to another three tenants. The front building is

heated by an oil-fired central heating system installed three years ago. Boilers and tankless

heaters are used to prepare hot water. Whether the attic can be developed remains to be seen.

Purchase price: € 9,900,000.00 plus 4.76 % sales commission (incl. VAT), yield rate: 2.87 %

Very Handsome Refurbished Belle Epoch Building

This property is located in the district of Prenzlauer Berg in the Borough of Pankow. The

immediate vicinity offers an excellent infrastructure with plenty of boutique stores, cafés and

restaurants. The property was redeveloped and modernised in the early 1990s. It represents an

impressive historic five-storey stucco building with a Belle Epoch façade. The attic has been

developed into presentable residential units. The house is heated by gas-fired central heating.

Most of the flats feature historic board or parquetry flooring, stuccoed ceilings and tall historic

doors.

Purchase price: € 3,050,000.00 plus 7.14% sales commission (incl. VAT), yield rate: 4.3 %

New Office Scheme in Superior Location in the City West

This property is located in the core area of Charlottenburg district. Genuinely new

office buildings are rather rare and highly coveted in the quarter. Having your

workplace here will let you take advantage of the extended shopping

opportunities on the one hand and of the richly varied gastronomic scene on the

other hand. The mixed office-commercial building offered for sale here was

raised in 1995 and is in excellent repair. All units are let on long-term leases.

There are two store units on the ground floor. A total of ten office units are

located on the six upper floors, let at an average rent of 12.92 euros / sqm. The sixth floor includes two flats. The

house is hooked up to district heating.

Purchase price: € 10,250,000.00 plus 4.76 % sales commission (incl. VAT), yield rate: 5 %

Credits

Dr. ZitelmannPB. GmbH, Rankestrasse 17, D-10789 Berlin Authorised representative: Dr. Rainer Zitelmann / Commercial register: HRB 130452 B

Michael Schick Immobilien – Investmentmakler , Rheinbabenallee 40, D-14199 Berlin Authorised representative: Jürgen Michael Schick

Phone: +49 30 - 254 93 167 E-mail: [email protected]

Photo credits: Dr. ZitelmannPB. GmbH, Michael Schick Immobilien, GSW Immobilien, Fotolia, shutterstock Bocman1973, shutterstock andersphoto

berlin residential investment market · 2015-08-24 · berlin ranges in third place among the...

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