BERLIN: EUROPE’S RISING STAR
Following on from our introduction to the Berlin property market last week, we take a more in-depth look at the economic and investment potential of the cosmopolitan German capital, including exploring one of the city’s most promising districts.
BERLIN’S GDP GREW FASTER THAN ANY OTHER STATE IN THE COUNTRY IN 2013.
Germany is currently the world’s fourth largest national economy, with a GDP of USD3.64 trillion. This accounts for 20.8% of the entire European Union economy, and is 44.1% larger than the UK’s USD2.52 trillion GDP.
The German economy has remained stable in the midst of a difficult global economic environment. Despite a minor contraction in Q2 of this year, Germany once again showed its resilience as recently released Q3 data demonstrated resurgent economic growth once again. This performance is expected to continue, with forecasts for total 2014 economic growth at 1.4%, and 1.6% for 2015. This positive performance in Q3 was matched by all the major Eurozone economies and points to steadier times for the region.
Germany’s economic stability continues to attract investors, with Berlin standing out as a leading investment destination. The city’s GDP is among the highest in the country at USD35,313 per capita, having grown 17.3% between 2005 and 2010. This impressive growth covers the onset of the Global Financial Crisis. Since then, Berlin’s local economy has continued to flourish, with Berlin’s GDP growing faster than any other state in the country in 2013.
A contributing factor to this growth has been Berlin’s rising status as a haven for new technology start-ups. In recent years, the German capital has recorded upwards of a staggering 45,000 new businesses annually across a wide range of sectors, which has driven job growth projected at 0.6% for 2013/14, against 0.3% nationwide. This represents some 176,000 jobs created in the seven years to 2012, adding 17.4% to the city’s workforce.
It’s clear that the local Berlin economy has what it takes to support strong and stable investment returns, but are the opportunities there for real estate investors to leverage? We believe the city is primed to provide excellent results, with several of the city’s districts presenting a high-potential case for investment.
Average condominium prices across Berlin rose sharply in the beginning of 2014, up 8% against the previous half year. This has largely been attributed to the shortfall of residential supply across the city coming up against rising demand, which is being driven by population growth and the low cost of borrowing – interest rates currently sit at just above 3%.
Historically, overseas investors looking at Berlin have focused on the popular inner city districts, in particular Mitte. Mitte certainly still has something to offer investors looking at the city, but for some of Berlin’s best value opportunities we recommend investors refocus their attention on areas just outside of the city centre, where prices remain low but offer strong growth potential.
Among our top picks when it comes to such areas is Schöneberg, to the south west of Mitte. This part of Berlin is laced with history and is seen as very attractive among Berlin’s young professional class who support a strong rental market in the district.
There has been a noted recent trend of local residents moving to the city’s outer areas to escape rising prices. However, with many dependent on the city’s central areas for employment, commuting convenience is a key factor in deciding on which outer districts they focus their attention.
Schöneberg’s lower than average pricing and excellent location for travel to key areas of the city centre have made it a firm choice among this demographic –the area boasts median rent lower than the citywide average, while the employment hub at Postdamer Platz is reachable in just 10 minutes through the highly efficient Berlin U-Bahn public transport system.
All this has led to Templehof-Schöneberg seeing the joint third-highest level of migration from other Berlin districts in 2012, with the vast majority of these new residents moving to the area from the more expensive central parts of the city.
However, this incoming migration is as ever limited by the area’s residential supply. Templehof-Schöneberg is home to 323,032 residents, and a significant shortfall of housing in the district has restricted population growth to a level well below that which the area’s popularity could support. The number of residential units in the district only rose by 0.1% in 2012, and the area saw just 63 new units completed in 2013, the lowest of any Berlin district.
A total of only 380 units are in the pipeline for Schöneberg; a proposed project to redevelop the grounds of the old Templehof Airport would have delivered an additional 1,000 apartments, but this plan has recently hit problems in the planning stages, with local residents voting to retain the area as a leisure space.
This lack of supply is driving rental increases in the area, with average rent up 6.5% in 2013, but it is in terms of sales price development that Templehof-Schöneberg’s supply-demand imbalance is being most clearly demonstrated. Over 2013, the median apartment price in the district rose by an impressive 16%, compared to a citywide average of 9.1%.
OVER 2013, THE MEDIAN APARTMENT PRICE IN SCHÖNEBERG ROSE BY AN IMPRESSIVE 16%, COMPARED TO A CITYWIDE AVERAGE OF 9.1%.
All these factors contribute to our decision to champion Schöneberg as Berlin’s prime location for property investment. Although other areas do have much to offer, Schöneberg appears to boast a situation perfectly balanced for strong returns.
That’s why we’ve focused on sourcing a high-potential project in this part of Berlin over the summer, resulting in the recent launch of our first ever Berlin investment.
KuStrasse 17 is in a prime part of Schöneberg, and benefits from the full investment case outlined above, as well as the fact that the project is a rejuvenation of a period property, which is currently a very popular segment among Berlin buyers. Such properties are nevertheless in very short supply, and most require significant capital expenditure towards modernization, so this represents a rare opportunity in the city.
If you’d like to know more about the potential for investment in this exclusive new project, take a look at our KuStrasse 17 property portfolio page, our Berlin Spotlight page or contact one of our expert Consultants.