Berlin is becoming more and more of a focus for global real estate investors as we head into the final quarter of 2015. The strong and steady arrival of new residents, growing tourist numbers and a specific and highly successful business dynamic continue to carry their positive effects over to the city’s property market.
IP Global’s investment team is seeing more than enough to sustain their confidence in Berlin as a viable alternative to increasingly difficult-to-access prime central markets in other world cities.
Developers and institutional investors certainly agree. Berlin was Europe’s third most active real estate market in the first half of 2014, and ULI/PwC recently ranked the city as Europe’s top real estate investment location in their Emerging Trends in Real Estate Europe 2015 report.
Latest forecasts now put population growth in Berlin at 9.6% through to 2030, which would represent an additional 340,000 residents making the city their home. This comes after a remarkable period of growth that has seen an estimated 190,000 settle in the city between 2009 and 2014.
The strength of Berlin’s economy is demonstrated by the fact that during the course of this extraordinary population surge the unemployment level in Berlin has been consistently trending downwards, with over a quarter of a million new jobs created over the past decade.
Another notable demographic development in Berlin has been the trend for smaller households. The average number of persons per household fell from around 1.84 to 1.17 over the past fifteen years, a factor that further compounds the rising demand for housing being driven by typical population growth.
In a recent interview with REFIRE, Karsten Jungk, partner and managing director of consultancy group Wüest und Partner Deutschland, commented on the recent trend for smaller apartments, saying, "Berlin is the biggest city for singles in the country, and likely to remain so. What is needed is additional 1-to-2 room apartments of a smaller size."
These comments touch on the other side of the supply-demand equation – the notable residential supply shortfall by which Berlin remains afflicted. In the face of such a rapidly rising population and the trend towards smaller households, estimates suggest the city needs to create some 20,000 new homes every year over the next five years.
The city’s current progress towards this goal is however falling short, with only 9,000 new homes built in 2014. With 2015 not likely to be significantly better in terms of hitting this 20,000 home target, confidence that supply will continue to well outstrip demand for the foreseeable future is high.
With both low supply and high demand continuing to put pressure on prices, investors who have already entered the market have been recording strong returns.
Apartment prices across the city rose an impressive 11.7% across 2014, while rents grew 6% over the same period. Mitte, one of Berlin’s key central districts, led the way in this growth, with apartment prices up 24.2% while rents were up 10%.
Analysts are confident that despite this excellent recent growth, sale prices and rents remain well below their expected ceiling. Positive performance in Berlin is very much expected to continue delivering strong returns to investors.
This week sees the launch of our latest Berlin investment, The Wilhelm. A luxury development at a prime location in the heart of Mitte, the Wilhelm is our first opportunity within Berlin’s ultra-high-end market. With the majority of prime properties in markets such as London and New York now at inaccessibly high prices, the Wilhelm presents an increasingly rare chance to purchase a premium investment property in one of the world’s most stable and well-performing markets without compromising on value.