Along with Paris, Berlin was second only to London as Europe’s most active property market last year, with transactions worth EUR10 billion taking place between Q4 2014 and Q3 2015. The city remains Germany’s most important location for investment in property – one in five Euros invested in German residential real estate is currently spent in Berlin.
Continuing population growth, a dynamic and varied economy and relatively low property prices compared to more established investment markets such as London and New York, are making people sit up and notice all that Berlin has to offer. A recent joint report from PwC and the Urban Land Institute, as well as first for expected capital value increase and second for expected rent increases.
This follows an impressive market performance in 2015, a year that saw the average apartment price in Berlin rise by 10.1% and average rents across all market segments increase by 5.1%.
Ongoing incoming migration will support further growth going forward, with the city’s population set to rise by 7.2% through 2030 following the settlement of 44,742 new residents in 2014. The large influx of refugees entering Germany in 2015 and 2016 will also have a significant impact on forthcoming population growth.
New residents arriving in Berlin eclipse the current rate of house-building. Just 5,208 new apartments were completed across the city in 2014, contributing to an increase in housing stock of only 1.3% since 2010. With this figure equating to just 1.5 newly finished apartments per 1,000 residents, Berlin house-building falls well behind that in Germany’s other six major cities (Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart), which all saw the completion of between 2.5 and 4.5 new apartments per 1,000 residents over the same period.
This rate is expected to pick up in 2016, with the delivery of 12,000 new units expected throughout the year. This however must be contextualised against predicted high demand for housing in the years ahead. Current forecasts predict demand to reach 15,000 to 20,000 new units over the same period, and even this is considered a very conservative estimate that doesn’t account for the high level of recent immigration.
It’s worth remembering that Berlin remains very much a renter’s city, with the owner-occupation rate still sitting at only 15%. This rate has been slowly rising, having been only 10% when the Berlin Wall fell 27 years ago, but the trend for homeownership is certainly gaining steam in the city. This means that investors can both expect a strong sales market when they reach the time to divest, but also that the rental market is very strong, keeping yields over the course of the investment term stable and secure.
Where to invest in Berlin in 2017?
High-potential investment opportunities exist in a number of Berlin’s 12 districts. Particular attention should be paid to smaller neighbourhoods within these large districts. As market performance is typically broken down by entire districts, strong local performance can sometimes be masked or even missed.
Berlin’s central district of Mitte remains a key investment hotspot. This is the heart of the city and huge levels of development and regeneration over the past decade have transformed it into Berlin’s prime residential location.
Apartment price growth in Mitte reached a massive 28.1% in 2015. Condominium price rises were below the citywide average, but still reached 7.6% over the year, while average rents increased by an above-average 7%.
Surrounding Mitte are a number of neighbourhoods experiencing something of the ripple effect produced by Mitte’s popularity and subsequently rising prices. The Friedrichshain neighbourhood within the Friedrichshain-Kreuzberg district was the location for one of our first entries into the Berlin market, and the district continues to perform well. Apartment building prices were up 15.8% in 2015, while condominium prices rose 10.2% and rents increased by 5.9%.
Bordering Friedrichshain-Kreuzberg to the south is Neukölln, which saw an incredible increase in apartment prices in 2015 – the highest in the city at 40.7%. Condominium prices also rose at well above the citywide average at 13.4%, while the rental market saw moderate growth with rents increasing by 3.3%.
The northern neighbourhoods of Neukölln have become very popular in recent years, benefiting from proximity to trendy but increasingly expensive Kreuzberg in much the same way that Freidrichshain has over the same period. Dubbed “Kreuzkölln”, this area is one of Berlin’s up-and-coming locations and is expected to see strong growth in the next few years.
One of the attractions of this area is the bohemian atmosphere created by the meshing of the chic ambience of Kreuzberg with the greener suburban character of Neukölln. Richardkiez is perhaps the clearest example of this, and given the very reasonable housing prices in the neighbourhood, it stands out as one of the city’s best investment locations right now.
The emerging eastern district of Lichtenberg is following in the footsteps of Friedrichshain, but unlike its western neighbour has a lot of room to grow.
Lichtenberg has the second lowest housing cost ratio in Berlin at 17.7% and the third-highest rental growth, which is a positive marker for identifying the cusp of future gentrification. According to CBRE, a 7.6% population increase is forecast for the area by 2030, which is higher than the 7.2% average increase forecast for Berlin. Rents in Lichtenberg are below the city’s average median and future demand driven by renters looking for better value.