Berlin’s young population, commercial might and unique history are combining to create one of the world’s most dynamic investment markets

The strength of the German economy continues to set the country apart as a secure property investment hotspot in mainland Europe, and nowhere is this truer than in the capital, Berlin. 

Commerce and industry are booming while the city continues to benefit from the national policy of free education and intellectual property retention that is playing a key role in driving local population growth. 

The knock-on effect on the property market is clear, with performance inspiring investor confidence worldwide. While Mitte, in the heart of the city, is an established investment hotspot that can still offer good opportunities, better value is often to be found in less well known parts of the city. 

Start-up hub 

The German capital’s pro-business culture has seen it develop into a start-up hub for the whole of Europe. 

A massive EUR1.9 billion was invested in Berlin start-ups across the first half of 2015, more than the equivalent figure for the entire previous year. This has resulted in major new business growth, with a new start-up entering the market as regularly as every 20 hours. 

Each year now sees some 40,000 new companies set up shop in Berlin, a figure which contextualised by population is the highest in the nation. 

This is in part down to Berlin’s diverse high-tech industrial arena, with IT, Pharmaceuticals, Biotechnology, Biomedical Engineering and Renewable Energy all major sectors within the commercial landscape of the city. 

This of course means more jobs, with booming Berlin now boasting the highest employment growth of any German state. The city’s largest business sector by employee numbers is actually tourism, an industry that now employs well over a quarter of a million people. This reflects the city’s status as the third-most important tourist destination in Europe, behind only London and Paris. 

Young, educated population 

With 170,000 students studying in Berlin across four major public universities and five recognized private universities, higher learning is key part of life in Berlin. The Freie Universitaet Berlin (FU), Humboldt University of Berlin (HU), the Technical University of Berlin (TU) and the Berlin University of the Arts (UdK) are all internationally renowned institutions that play a key role in driving the national and local economy and culture of innovation. Charité, the joint medical school of FU and HU, is now one of the largest university hospitals in Europe. 

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And all of those students study at virtually no personal cost. Free-for-all higher education has become a headline grabbing policy across Germany in recent years, and is a clear signal of the nation’s dedication to investing in its intellectual economy. 

Free education even extends to overseas students, who are offered the same discounted study costs as German students. With 25,000 international students now studying in Berlin alone, this policy costs the German tax payer EUR332 million a year. 

But with 50% of foreign students now remaining in Germany after graduation, this programme of intellectual property acquisition and retention appears to be working. 

Population soaring 

The population of Germany is growing, and Berlin is leading the way. The capital – already the third-largest city in Europe with 3.52 million residents – has seen its population grow by an average of 40,000 new residents in each of the past three years. 

This growth is forecast to continue, with some 400,000 further residents expected to push the city’s population close to four million by 2030. All these new people will need a place to live, so demand for housing is predicted to equal a massive 300,000 new homes over the same period. 

Despite this, house-building in Berlin is at a lower level than in any of Germany’s other major cities, with only 0.8 new apartments completed per 1,000 residents in 2014. The current construction pipeline is more positive, with 17,600 new units expected to complete in 2016. This is still however 12% below the almost 20,000 annual target required by the predicted population growth, and the likelihood of this level of construction being maintained over the coming decade and a half is low. 

Such a deficit of housing supply will of course have a positive effect on property prices. 

Prices have already been rising in Berlin, with the city recording an average increase of over 10% in 2014 and continuing to rise by a further 13.1% across 2015. 

Rental rates have also grown, seeing an increase of 6.6% in 2014, although despite this Berlin remains the most affordable major city for renters in Germany. The city has recently implemented a system of rental caps that applies to all properties sold after June 2015 and is expected to support sustainable growth. 

New potential in Neukölln 

Neukölln, Berlin’s most populated district, is located in the southeastern part of the city and has emerged as a key investment hub. The area has been growing steadily, with new residents and regeneration investment going hand in hand. 

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Over the second-half of 2015, average property prices were up by 15.7%, while in 2014 prices in the condominium market segment rose by an impressive 17.4% - the highest growth seen across Berlin over this period. 

While prices in the north of the district have risen precipitously given their proximity to trendy Kreuzberg, further south offers more opportunity for investors, with the popular neighbourhood around Richardplatz a stand out. 

Known locally as Richardkiez, or Rixdorf, this local market was identified by CBRE in 2015 as one of Berlin’s top five up-and-coming neighbourhoods after recording rental price growth of 12.5% over the course of 2014.