Berlin Residential Investment Market

Transcription

1 Berlin Residential Investment Market News Update on Berlin s Rental Housing Market September 2012 Berlin News Apartments for Singles in Short Supply Berlin keeps growing: By the end of 2011, more than 3.5 million people lived in the German capital. The number of private households is rising apace with the demographic growth. Between 2000 and 2010, it increased by around nine percent. The fastest increase was registered for single-person households. The latest figures by the Statistics Office show: Every other person in Berlin lives by him- or herself. This puts the capital squarely in the lead compared to the rest of Germany. While only 20 percent of all households nationwide consist of just one person, that share is as high as 54.1 percent in Berlin. Small Apartments Wanted in the German Capital The high share in singleperson households has left its mark on Berlin s residential real estate market. The vacancy rate for small apartments is substantially lower than that for large apartments. The Berlin-base housing company Degewo reports that only around 1.5 percent of its one- and two-bedroom apartments are vacant. The vacancy rate for three- and fourbedroom apartments is Capital of Singles Trend of single- and multiperson households in Berlin between 1990 and 2010 Figures in 000. more than twice as high. A poll that the BBU Association of Housing Entrepreneurs in Berlin and Brandenburg conducted among its members revealed that two out of every three tenant leads are looking for small apartments. Only six percent are seeking large apartments with four bedrooms or more. With this in mind, it comes as no surprise that more and more housing companies in Berlin are keeping waiting lists for their coveted studio and two-bedroom apartments. Project Developers Responding to High Demand Another factor aside from the high share of singles that has boosted demand for small apartments is the surge in rent rates and purchase prices in large areas of Berlin. Many of those living by themselves only have a limited budget for their accommodations. At rents of more than 8 Euros per square metre, a large apartment can quickly exhaust their spending power. Project developers and investors have begun to exploit the high demand generated by Berlin s singles by investing in the construction of small apartments. Indeed, several project developers with focus on student and single apartments have shifted their attention to Berlin with the stated intention to raise more than 1,000 residential units in the capital before 2014.

2 Berliner Zinshäuser Ausgabe 5 / September Interview that rents and prices have noticeably risen as a All and Sundry Buy in Berlin Berlin s residential real estate market has become investor s darling. Last year, more than ten billion Euros were spent on plots and residential properties in the German capital. As often as not, the buyers hail not from inside but outside Germany. In fact, residential real estate in Berlin is meeting with enormous international interest because the local market offers tantalising conditions for profitable investments, says Jacopo Mingazzini, Managing Director of real estate service provider Accentro. What makes Berlin s real estate market so attractive for foreign investors? The main reason is the comparatively low price level. Investors will get a condominium for an average square-metre price of 1,883 Euros in Berlin, whereas they would have to pay four to six times as much in European cities such as Paris, London or Oslo. Moreover: Since there is reason to expect hefty rent hikes in the coming years, Berlin looks more or less like an investor s paradise to foreign players. What makes you think that rent rates will keep going up? Berlin s economy, population and number of households are growing briskly. According to recent forecasts, Berlin will cross the mark of 3.6 million residents by All these people will need a place to live. Housing construction has been neglected for years, so between domestic and foreign investors? Foreign investors tend to have a wider investment radius than German buyers. While wishing to invest in Berlin, they do not limit themselves exclusively to districts such as Mitte, Prenzlauer Berg or Friedrichshain-Kreuzberg, but take an interest in properties in Wedding and Tiergarten, too, For foreign investor, the affordable entry-level prices in combination with the enormous appreciation potential are tantamount to an investor s paradise. result. If the housing supply continues to contract, rates and prices will climb higher yet. Investors wishing to take advantage of the currently auspicious parameters are therefore well-advised not to procrastinate because the battle for the most coveted assets has long been underway. Does the European debt crisis boost the run on Berlin real estate? Most definitely. Germany in general and Berlin in particular offer stable economic and political parameters when compared to other countries. Investors from Italy, Portugal, Ireland, Spain, and Greece who are concerned about the Euro and financial crises appreciate the German real estate market and have increasingly put their money into residential real estate in Berlin. Are there differences given the superior yield opportunities. There are also differences in regard to the apartment size favoured: Foreign investors are much less prejudiced against small apartments of one or one-anda-half bedrooms than domestic players.

3 Berlin Residential Investment Market Issue 5 / September Column the investment of choice. If this is so, why would you Suppose I Sell then What? by Dr. Rainer Zitelmann Estate agents in Berlin all seem to face the same issue at the moment: While there is any number of prospects eager to buy, few owners wish to part with their apartment blocks. It is one of the reasons explaining the price hikes. Yet many estate agents have failed to shift their approach: They mainly continue to explain why buying property in Berlin is a good idea. It is a story they tell well, because they have spieled it for many years. To be sure, it has not always been easy to cite convincing arguments in this context. On the one hand, however, direct real estate investments have become the thing to do, while, on the other hand, But what is an estate agent supposed to tell the owner of an apartment block who might sell but wants to know first: Okay, Why sell if property appears to be the perfect investment? want to sell? To be left sitting on a big bag of cash and wonder where and how best to invest it? Agents are agents. Selling real estate is what they do. But most of them sell real estate only in their hometown and place of business. The thing is, there are many cities in Germany that have not yet moved into the focus of domestic and international investors, and where real estate prices have not been quite as fast to rise. With all these buyers concentrating on the major metropolises where prices have soared, are buying opportunities not likely to be much better in cities that more or less ignored so-called Grade B locations? Why, for instance, would a Berliner not buy in Hanover? The answer being: Of course, most people understandably prefer to buy in their hometown where they know their way around and are better positioned to appraise a given location. This is an aspect where estate agents should the arguments in favour of provide a better service: They investing in Berlin have made the ought to collaborate and enter rounds. into joint ventures with estate agents in other cities. They should offer well prepared market information that will make the market for suppose I sell then what? What am I supposed to apartment blocks in another city more transparent to do with the money? Perhaps the estate agent will the reader. They should also organise briefings be able to offer him an apartment block in a Berlin together with good estate agents from other cities. district or in a building age category that has not Only an agent who gives a plausible answer to the experienced major price hikes yet. But as often as question of Suppose I sell then what? will turn not, no such property will be on hand. property owners in Berlin who could make a profit So what is he going to reply in answer to the by selling now from potential leads into actual question Suppose I sell then what? After all, sellers. Finding buyers in the next step will be much people wish to invest their money in real estate easier, given the many arguments that speak in these days, and so they should. The interest favour of Germany s capital. returned by Federal bonds is so low as to undercut In short, estate agents need to reshuffle their the inflation rate. Equities are too fickle for many, arguments. The story they have learned to recite by and bullion has already become too pricy, at least in heart ( This is the time to buy in Berlin ) has outlived the eyes of many. Which leaves real estate its usefulness on a market where a shortage of especially given the historically low interest rates buyers has given way to a scarcity of sellers.

4 Berlin Residential Investment Market Issue 5 / September Market Trends Selling when Fundamentals are Excellent by Jürgen Michael Schick, MRICS The value of a property is defined by the demand for it generated by occupiers. A property s value is subject to the number of interested buyers or tenants. It will diminish in proportion to any decline in occupier demand. Some regions in Germany are at the losing end of migration patterns, others on the winning end, as is commonly known. Investors are well advised to check whether a given market will be subject to the same demand as today ten or twenty years on. I see no way for many economically undeveloped regions in Germany to say as much. Things are very much different though in the country s metropolises, with Berlin in the lead but also conspicuous in Leipzig or Hanover. The fundamentals are excellent, and will evidently stay that way for some time to come. Soaring Demand There are 175,000 more households in Berlin today than there were in the year The figure matches the number of households of a city of at least 300,000. It represents the fast-growing demand side of Berlin s real estate market. The comparison with cities of this magnitude illustrates what it means for the German capital that these 175,000 households all hunted for a flat during the past few years. It is almost as if the entire city of Braunschweig with its population of 248,867 had As the latest figures go to show, the current upward trend in the number of building permits still falls short of growing demand. packed up and moved to Berlin. Other cities that come to mind are Münster with 279,803 residents or Karlsruhe with 294,761. This sort of comparison makes perfectly obvious that Berlin is by far the largest real estate market in Germany. What is more, the growth in the number of households is to remain clearly positive for years to come. Berlin s Senate Administration quotes a conservative growth forecast of another 2.9 percent by No Trace of a Construction Boom So what about the supply side? While there is some building activity, it falls substantially short of what is absorbed by the market. The latest figures demonstrate that the number of building permits granted, while having gone up, lags far behind demand. Nearly 3,000 apartments were licensed during the first semester of Set in relation to the total of 1.9 million apartments in Berlin, this equals 0.15 percent of the stock. Construction of so-called multi-unit buildings has resumed, meaning the apartment block segment. In fact, they account for about two of every three new building permits. The concrete figure is 1,965 apartments in this segment. With the number of apartments taken off the market and the merging of existing apartments factored in, the balance adds up to perhaps 1,200 new units. As Dirk Wohltorf, Chairman of IVD Berlin, aptly phrased it: This does not have the looks of a construction boom. Neither is it safe to assume that every apartment licensed will actually be built. A building permit is effective for three years.

5 Berlin Residential Investment Market Issue 5 / September Selling when Everyone is Buying in interest rates. If you re-invest, the price level The market stats speak a clear language. Berlin s will be admittedly higher, but entry-level prices supply and demand situation has turned the city are (more than) compensated by very favourable into one of the most interest expenditures. interesting investment In this context, I am locations. There is any often asked by owners number of reasons to invest here. For portfolio holders who have hung on to their privately owned properties for more than 10 years, the profit-taking prospects could hardly be better. At a time when everyone seeks to The market figures speak a clear language. Berlin s supply and demand situation has turned the city into one of the most interesting investment locations. why a person would want to sell at a time when everyone is buying. The answer is relatively simple: When else would you sell? If the DAX stood at 10,000 points, I would buy, you should look into selling your property. sell my Siemens stock even if I was a long-term Chances are slim that we will see this historically investor. unique combination of high prices and all-time low Portrait of a District: Friedrichshain A District Re-Inventing Itself Friedrichshain is one thing above all colourful. There is no better way to describe the district. For Friedrichshain is one of Berlin s most multi-facetted areas: You will find vibrant and quiet neighbourhoods, and conservative lifestyles along with alternative ones. Friedrichshain has undergone a radical metamorphosis during the past 30 years. On the eve of the reunification, it was still a workingclass district. In the early 1990s, the years immediately following the reunification, Friedrichshain was famous or perhaps infamous for its conspicuous squatter scene. From this cultural background emerged a number of popular socio-cultural institutions, including bars, event venues, and video cinemas. These attracted more and more students who after coming to the city discovered the district for themselves and helped to shape Friedrichshain into a popular residential and living area in Berlin. Berlin s Friedrichshain district is located in the Borough of Friedrichshain-Kreuzberg. It owes its name to Volkspark Friedrichshain, Berlin s first municipal recreational area. (Copyright: TUBS) Although the district is undergoing a progressive gentrification process, alternative lifestyles have not vanished from the streets. On the contrary. The Borough is sponsoring these lifestyles through dedicated measures. Just this past July, the Borough Council announced its intention to protect the trailer community that has squatted on Modersohnstrasse for the past eleven years. Residents of this

6 Berlin Residential Investment Market Issue 5 / September compound of well over 5,000 square metres have been offered leases with rent rates of 12 Cent per square metre. Urban Renewal Area Turns Trendy Quarter Historic building in disrepair, parklands gone to seed, sky-high vacancies in the days rights after the reunification, Friedrichshain was anything but a trendy district. Things looked so bleak that Berlin s Senate declared large swaths of the district an urban renewal area in Several hundred million Euros in public funding were pumped into the effort to upgrade Friedrichshain. The money was used to construct new playgrounds, landscape the parklands, redevelop preschools and schools, and to improve residential fit-outs. The ward Samariterviertel brought back to life: An area that used to be desolate and threatened by decay and outgoing migration has turned into a vibrant and stable quarter, says Borough Mayor Franz Schulz. (photo credit: Gryffindor) During the past five years, a number of redevelopment projects were successfully completed. The Samariterviertel ward is a good example for the ways in which the district has changed. At the time of the city s unification, the ward was in poor condition. The blue- and white-collar workers who used to live here often dwelled in small apartments without bathroom, with plaster falling off the walls and many apartment units standing empty. Today, nearly 90 percent of the residential buildings have been redeveloped, seven playgrounds were put in, and the population has increased by one third. The refurbished historic buildings are particularly attractive to young families with one or two children, and the average age in the ward is just 33 years. New Quarters Being Created For decades, Friedrichshain was a working-class district defined by many industrial and commercial businesses. Many of the businesses closed after the reunification. What remained were industrial buildings such as the old warehouses and cold storage plants at the Osthafen inland port. Starting in the mid- 1990s, these were redeveloped, converted and re-let at great expense by investors and project developers. Today, the Osthafen compound is throbbing with creative life: The former egg cold storage plant directly at Oberbaumbrücke is home to the Berlin branch of Universal Music. Music and entertainment broadcasters MTV and Viva have moved into the building right next door with their Germany headquarters. The company Fernsehwerft is making studios and equipment for TV productions available on the waterfront plot. A Musik-Hotel is being operated by nh Group. Moreover, a variety of fashion labels have relocated to the site and set up show rooms in a redeveloped warehouse. Starting in 2014, another company of global renown will move to Osthafen Coca-Cola. The Osthafen compound is part of the new Mediaspree Quarter that is to be created in Friedrichshain in the coming years. In addition to the construction of offices, project developers and investors are planning to move in retail units, gastronomy, hotels and cultural venues, and to build apartments. Currently going through the marketing process is the area surrounding the O 2 -World indoor arena. The company AEG sold 20 hectares between Warschauer Strasse and Mühlenstrasse to investors. 4,500 square metres thereof have already been signed over to Daimler. Located across from the

7 Berlin Residential Investment Market Issue 5 / September Eastside Gallery, the site will be home to the new group headquarters with its 1,200 staff. finest development opportunities in Berlin. This is perhaps explained by the low local unemployment rate, and the fact that few families with children are likely to leave the area. The Osthafen compound is considered the showpiece project for the new Mediaspree Quarter. (photo credit: Georg Slickers) Focus on Townhouses The most recent trend manifesting itself in the district is that project developers and investors no longer limit their focus to commercial real estate. More and more often, they invest in the construction of townhouses, which are very sought among tenants and buyers. Especially young families show a keen interest in these new buildings, according to the CDS housing association. The company is raising 82 terrace housing units on the brownfield area of the former abattoir along Eldenaer Strasse. Many of the planned residential units were sold before the construction even started. This area is another example for the transformation that Friedrichshain has undergone. For a long time, the old abattoir area was derelict. Today, around 90 percent of the area has been developed. It has become home to 1,100 new residents. Amenities in the neighbourhood include a DIY store, several supermarkets, and a delicatessen. Bygone times are commemorated by street names such as Zur Rinderauktionshalle or Viehtrift, referring to the cattle auction hall and the livestock paddock, respectively. Most recently, Berlin s Senate referred to the area around the old abattoir as one of the residential quarter with the Steep Rent Hikes The transformation of Friedrichshain comes at a price. Over the past five years, asking rents have increased by an average of 32 percent. The most affordable square-metre prices are currently reported from the area around the Ostbahnhof railway station. Here, the rent level marks the bottom market segment at 5.08 Euros per square metre. Across market segments, asking rents in Friedrichshain average 8.11 Euros per square metre at the moment. The four Friedrichshain wards Ostkreuz, Volkspark, Ostbahnhof and Samariterstrasse are among the 50 areas with the lowest purchasing power in Berlin. With the rent level in all parts of Friedrichshain exceeding the mean rates for the city as a whole while income levels are low, the housing cost ratio is extreme. It ranges from 29.2 percent around Ostbahnhof to 31.0 percent around Volkspark. The centrality of the district appears to make up for the high housing costs in the eyes of local residents. Few vacant apartments remain in Friedrichshain. With an average of 2.0 percent, the vacancy rate clearly undercuts the Berlin average of 3.3 percent The average net rent (in Euros per square metre and month) in Friedrichshain rose by around 32 percent in recent years. (Source: GSW Housing Market Report )

8 Berliner Zinshäuser Ausgabe 5 / September Apartment Buildings of the Month Seven Highly Presentable Units in Bayerisches Viertel This highly presentable belle epoch buildings is located on a quiet side-street of Berlin s Wilmersdorf district. The neighbourhood is defined by many attractive historic buildings and an excellent infrastructure. Access to public transportation is superb. The building was modernised from the bottom up in 1992, and its condition can be safely described as good. Seven units in the building are for sale. These include two commercial units and five condominiums. Overall, the condominium package has a gross lettable floor area of square metres and generates net rent revenues totalling 33, Euros annually. The average square-metre rent is 6.72 Euros. Purchase price: 950,000 Euros plus 7.14 % sales commission (incl. VAT), yield rate: 3.54 % Sound Legacy Building close to Tegeler See Waterfront The property offered for sale is located in a quiet residential area in the historic Alt- Tegel ward in the Borough of Reinickendorf. The popular residential quarter is defined by appealing historic buildings and old-growth trees. Somewhat remote from downtown, it combines the character of a village with an excellent infrastructure. Dating back to the belle epoch, the building consists of a front building and a right-hand side building. It includes 13 residential and two commercial units. The apartments are heated by separate gas-fired heating units. The house appears to be in good repair, all things considered. The average apartment rent is approximately 4.63 Euros per square metre. All units are let at the moment. Purchase price: 1,100,000 Euros plus 7.14 % sales commission (incl. VAT), yield rate: 5.3 % Well-Kempt Combination Residential/Commercial Building in Karlshorst The property is located in the Karlshorst ward of the Borough of Lichtenberg. Formerly an estate of mansions, this ward represents the most attractive residential neighbourhood of Lichtenberg. The Friedrichsfelde Zoo is located in the immediate vicinity. The access to public transportation is excellent. This apartment block, which includes ten residential units and two small storefront retail units, consists of a front building and a free-standing back-building. The house is heated by gas-fired central heating. All things considered, the building appears to be in good technical repair. Purchase price: 1,600,000 Euros plus 7.14 % sales commission (incl. VAT), yield rate: 5.2 % Legal Notice Dr. ZitelmannPB. GmbH, Rankestrasse 17, Berlin, Germany Authorised representative: Dr. Rainer Zitelmann / HRB: Michael Schick Immobilien, Rheinbabenallee 40, Berlin Authorised representative: Jürgen Michael Schick Phone: +49 (0)30 / , info@berliner-zinshaeuser.de Photo Credits Dr. ZitelmannPB. GmbH, Michael Schick Immobilien, Accentro GmbH TUBS, Gryffindor, Georg Slickers