Berlin Residential Investment Market

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1 Berlin Residential Investment Market News Update on Berlin s Rental Housing Market November 2015 Berlin News Improvised housing for refugees and misdirected incentives for new housing construction According to social services, roughly 12,000 refugees were being housed in shelters in Berlin at the beginning of October, approximately 10,500 in mass accommodation and around 2,100 in temporary reception centres. In addition, there are about 10,000 more refugees currently being housed in rental apartments, and a further 1,400 living in hostels and bed and breakfasts. And everyday, more refugees are arriving Berlin s social services put the figure at between 600 and 800 new refugees per day. As in other regions, providing housing for refugees in Berlin is an enormous challenge especially as winter is just around the corner. The decommissioned Tempelhof airport is being used to house 2,300 refugees. The problem with this, as with other buildings under discussion, such as the ICC and a number of commercial and industrial halls, is that they lack the appropriate facilities. Sanitary facilities and recreational space first need to be created in order to make the longer-term accommodation of refugees possible. Berlin s Senate plans to build modular and prefabricated housing for refugees on some 60 sites across the city in order to provide accommodation for a further 24,000 refugees. As it has become clear that placing refugees in emergency shelters and improvised commercial properties can never be more than a temporary solution, the federal government has stepped in. Merkel s coalition government has announced plans for legislation to create tax incentives for housing construction and to streamline the red tape that makes it difficult and time-consuming for developers to secure planning and building permission. Even though the severity of the expected housing shortage is largely the result of the influx of refugees, the new legislation will be formulated not only to promote the construction of housing for refugees, but also to introduce tax incentives for the housing construction industry as a whole. A look at what happened in Germany s eastern states in the 1990s is enough to assess the side effects of such measures. Taxpayers money funded incentives that led to a supply of new buildings that in many cases ignored market-driven demand and once more with taxpayers money many of the buildings ended up being torn down. Market observers have rightfully called for sensible incentives to encourage professional investors to construct more housing. Regulations such as the rental price brake (Mietpreisbremse) are as equally out of place as scattergun tax incentives. Housing of refugees in Berlin Accommodation in containers Accommodation in containers (under construction) Reception facilities Mass accommodation Emergency accommodation Non-contracted accommodation Accommodation for unaccompanied minors Distribution of refugees across Berlin s districts Capacity Capacity Occupied 7.6% 13.3% 13.0% 11.0% 11.0% 9.5% 7.9% 4.4% 8.1% 6.0% 3.3% 4.9% Berlin total 100% Source: Regional Office for Health and Social Affairs Berlin s Tsp/Gitta Pieper-Meyer Source: The Tagesspiegel newspaper 1

2 Interview with Michael Stu ber, CEO of CD Deutsche Eigenheim AG Terraced homes are back in fashion Mr. Stu ber, you are currently developing a large terraced housing project in Berlin. What is it that makes you believe so firmly in the future of terraced homes? Demand for terraced houses is riding high and justifiably so. More and more young families with stable incomes are looking to strike the right balance between an urban lifestyle and living in green surroundings. Which is why a lot of families are opting for terraced homes in the suburbs. Growth in the suburbs of the biggest cities is actually outstripping overall growth within the cities, as demonstrated by the latest figures published by the Federal Institute for Research on Building, Urban Affairs and Spatial Development. A great example of this trend can be found in Teltow, on the edge of Berlin. We are just about to complete a project involving 93 terraced houses in Teltow, which, according to a Federal Institute study, is the third fastest growing place in Germany after Unterföhring and Feldkirchen near Munich. The population of Teltow grew by approximately 15% in the five years between 2008 and As far as demographics are concerned, all signs point in favour of terraced houses. And this is reflected in returns on investment? In direct comparison with rental apartments, the returns from terraced houses are more than respectable. FERI EuroRating Services, for example, has calculated that rental yields for terraced houses in Berlin were stable between 2010 and 2014 at a little more than 6% per annum. Private landlords in the classic apartment letting business have had to make do with considerably lower returns. They saw yields of between 3.7% and 3.9% per year over the same period. And why do you think returns are higher? One major factor has been the amount by which prices for real estates have rocketed in sought-after central locations. As prices have risen, yields for this segment have come under ever-increasing pressure. This applies even more so in large cities where purchase prices have risen faster over the last few years than market rents. The fact that terraced houses have outperformed other market segments is also due to higher demand for suburban living. More and more people want to live on the edge of a large city, but there continues to be a relative undersupply of appropriate properties. That has clarified the underlying market conditions. Are the major differences between terraced houses and classic apartments purely in their management? Primarily in relation to life-cycle costs after the initial purchase. This is where buyers of terraced houses have things somewhat easier. Why? Administrative expenditure, maintenance and the costs associated with reletting can very quickly have a negative impact on returns. Terraced houses are not completely insulated from these costs, but many of the risks are less pronounced than with buy-tolet apartments. Take maintenance: It is quite common to observe that tenants in terraced houses develop a much stronger bond to their home than tenants in rental apartments. To put it simply, houses provide a different feeling of well-being and homeliness. This means that tenants in a terraced house have a much stronger sense of responsibility towards their house. Levels of tenant fluctuation are also generally much lower for terraced houses. When an apartment becomes too small for a growing family, or when a household member gets a new job, tenants in apartments are much quicker to think about moving out than tenants in houses. This is a real benefit for landlords as they tend to have fewer (and shorter) periods without tenants, and therefore lower costs associated with acquiring new tenants. 2

3 Column by Dr. Rainer Zitelmann Why Berlin is set for strong growth None of the population growth forecasts put together over the last few years are now even worth the paper they are printed on. Without exception, they are based on the assumption that net migration to Germany would amount to 100,000 to 200,000 people per year. Over the last few months, more people have been arriving in Germany each month than these forecasts allowed for in a whole year. Berlin s Senate Department for the Environment and Urban Development is finally reacting. It knows that the figures it has been working with are in sore need of revision. On the Senate s website the following explanation has been published: Berlin is currently undergoing extremely dynamic population growth. Between 2011 and 2014, around 175,000 new Berliners made the city their home. This exceeds even the upper range of the upper (i. e. maximum) forecast scenario that was produced in Given the rapid influx of refugees, the Senate now says that these old forecasts (from the year 2011) for the population of Berlin and its districts between 2015 and 2030 are unusable. There was no way of predicting mass migration to Berlin on this scale back in 2011, which means that we now have to develop a smaller-scale forecast. This is currently being developed, is the comment on the Senate s website. The new forecasts will just like the old ones present three variations for the future development of the city s population. I am very curious to find out what these forecasts eventually look like. Nobody knows how total migration across Germany will ultimately develop because at the moment nobody knows whether, or to what extent, politicians will be willing or able to solve the current problems. But one thing is already clear: Germany s population is not going to shrink in the way predicted again and again by demographic analysts over the last few decades. And although, for example, there are plenty of vacant apartments in Germany s eastern states and rural regions, enough in fact to house a large proportion of the refugees currently arriving in the country, it is unlikely that these refugees actually want to settle in such regions. Experience demonstrates that migrants and refugees, understandably enough, want to settle in areas in which their countrymen and women have already established communities so more likely in Berlin than in Lower Saxony or Mecklenburg-Vorpommern. Germany s population is not going to shrink in the way predicted by demographic analysts over the years. Migrants and refugees are not going to be drawn to places where there are neither jobs nor communities of people who speak their language. Even if their first stop is in a different area, they are going to head for the big city after a number of months or years have passed. To some extent I am skeptical with regard to the social and political consequences of the current wave of mass migration. But for real estate owners and investors, particularly those in the housing sector, the news is good as demand for housing is set to develop more dynamically than was previously assumed in real estate market forecasts. And this means that we are in for an extended period of both rising rents and property prices not only, but especially in Berlin. 3

4 Berlin Real Estate Roundtable on 10 th December 2015 in Berlin on 27 th January 2016 in Berlin New migration, demographics and real estate market forecasts Housing construction in Berlin: The most interesting projects Almost every demographic forecasts has been based on the assumption that net migration figures would remain at between 100,000 and, at most, 200,000 people. In just the two years 2013 and 2014 there was a net increase of more than 800,000 people. This is twice the numbers in the high migration scenario and more than four times the figure for the moderate migration scenario. During 2015 alone, more than 1,000,000 refugees and 400,000 migrants from other EU countries are expected. Not all of them will stay. But it has already become clear that the baseline forecast of 100,000 to 200,000 people is way, way off the mark. Berlin is by far the largest and most attractive housing market in Europe. This event will provide you with the most up-to-date information from the Berlin market s top experts. Have prices already risen too high? Is it time to take advantage of sales opportunities? Where is it still possible to find attractive investments? How have recently introduced restrictions (ban on partitioning residential properties, laws to retain characteristics of specific neighbourhoods, rental price brake etc.) impacted the Berlin market? What chances result from the continual growth in interest from foreign buyers and investors? The speakers: The speakers: Dr. Reiner Braun, empirica ag Prof. Dr. Michael Voigtländer, Institut der deutschen Wirtschaft Köln e.v. Manfred Binsfeld, FERI EuroRating Services AG Markus Wotruba, BBE Handelsberatung GmbH Dr. Markus Cieleback, PATRIZIA Immobilien AG Andreas Schulten, bulwiengesa AG Marc F. Kimmich, COPRO Gruppe Reinhold Knodel, PANDION AG Alexander Happ, BUWOG Group Christoph Gröner, CG Gruppe Dr. Michael Held, TERRAGON INVESTMENT GmbH Helmut Kunze, NCC Deutschland GmbH René Richter, Kondor Wessels Holding GmbH Dietrich E. Rogge, ROCKSTONE Real Estate GmbH & Co.KG Request your programme and additional information by info@immobilienrunde.de 4

5 Market trends by Ju rgen Michael Schick, MRICS Commandeering property needs to be the last resort On 1 st October 2015, the local government of the Hanseatic City of Hamburg passed a rather straightforward-sounding piece of legislation called the Gesetz zur Flu chtlingsunterbringung in Einrichtungen (law to provide facilities to accommodate refugees). The law enables the relevant authorities to secure land and buildings in order to house refugees and asylum-seekers. There are a number of conditions attached the building or land must be unused and there must be a shortage of available space in existing initial and longer-term facilities. Berlin has already commandeered four properties to house refugees. Germany s constitution makes it clear that commandeering property in this way is only permissible as a last resort. The IVD is therefore demanding that it should only be possible to commandeer property when all other housing options across the whole of Germany have been exhausted. The IVD recommends that the federal police be given overall responsibility in this regard. Reasonable leases instead of property seizures The state already has the power in accordance with existing police and public order legislation to commandeer property in order to house the homeless. The wording of these laws differs from federal state to federal state. But they all contain very similar general clauses that make public authorities responsible for protecting individuals and communities and averting threats to public order. According to constitutional law, any commandeering of property will always have to satisfy established principles of proportionality and may only be used as a measure of last resort. Officials therefore need to be able to prove that that there is no way to house them all in state-owned facilities. They Photo: shutterstock.com 5

6 Market trends Photo: zpb First port of call for refugees in Berlin: Office for Health and Social Affairs (LAGeSo) also need to be able to demonstrate that the state is unable approved need to put on hold and reevaluated, as it has now to organise housing for refugees or asylum seekers via the become clear that these are exactly the apartments that are open housing market. Which is why we are demanding that now so sorely needed. As this housing is typically located in the authorities, before commandeering properties, should be structurally weaker regions, the federal government needs to required to make an appropriate offer to a property s owner make an appropriate level of financial assistance available to lease the property rather than commandeering it. to ensure that suitable infrastructure can be developed. This could eventually provide the impetus needed to regenera- Integration outside major urban areas is not unreasonable te these regions. Housing refugees in these regions is entirely reasonable and even their integration should be more As the constitution applies across the whole of Germa- straightforward in such manageable surroundings than in an- ny, these issues should be viewed from a perspective that onymous large cities, where the risks of ghettoes are much includes the whole of Germany. It may prove difficult to make greater. sufficient housing available for refugees in major urban centres such as Munich and Hamburg. However, in rural and structu- The right to own property is a fundamental and rally weaker regions there is no shortage of suitable housing. constitutional right Any assessments and decisions should not be limited to the individual federal states in which most of the refugees are It remains to be said: Even in cases where it is legally per- arriving. The Königsteiner Schlu ssel, the formula by which mitted to commandeer property in order to house refugees, it is determined how many refugees are distributed to which it must never be forgotten that the right to own property is parts of Germany, urgently needs to be revised. The formula also a constitutionally protected right. Admittedly, the use takes consideration of a state s population figures and its tax of the property also needs to serve the greater good, which revenues. Instead, the distribution of refugees should largely doesn t mean that the state has the right to interfere with pri- be determined by the availability of vacant housing. Expen- vately-owned property as and when it pleases. The respect sive programmes to demolish unused apartment buildings for private property needs to be maintained just as much in in Germany s eastern regions as part of the eastern urban times of crisis. Fundamental rights such as these should not redevelopment programme Stadtumbau Ost urgently need lightly be interfered with. Commandeering property really to be reconsidered. Demolitions that have already been should be the measure of last resort. 6

7 Portrait of a district Tempelhof-Schöneberg Berlin-Tempelhof More than just an airport Photo: 360b / Shutterstock.com Most people, when they think of Tempelhof, think of the airport that shares its name with the district. But Tempelhof offers much more than just Berlin s largest inner-city park. At 355 hectares, Tempelhofer Feld is without a doubt an impressive open space, but is really only one of the district s many points of interest. Above all, its proximity to central Berlin makes the district so special, along with its multifacetted architecture and varied urban landscape. Then there is the fact that the district does not stand alone. Since 2001, together with Schöneberg, it has formed a district bearing both names in the south of Berlin. Tempelhofer Feld and Tempelhof Airport In the 18 th century, Tempelhofer Feld was used as an exercise and parade ground. Later it became a showplace for air travel. Orville Wright, one of the most famous American pioneers of powered flight, set a world record here when he flew to an altitude of 172 metres in The site took on its role as an airport in 1927, becoming the world s first airport with a dedicated underground train station. It didn t take long before the airport s capacity was reached and the number of flights soon overtook Paris, Amsterdam and London. In 1934, the architect Ernst Sagebiel was commissioned to design the airport s new buildings, and tasked with unifying the national socialist s monumental architecture with the functional requirements of a modern airport. Constructed between 1936 and 1941, the airport s 307,000 square metres of total floor space made it the largest building in the world, until it was superseded by the Pentagon in Arlington, Virginia two years later. The airport was finally decommissioned in 2008 and since 2010 the former airfield has served as Tempelhofer Park. The airport buildings are still partially in use, providing office and commercial space, although no master concept has yet been approved. Tempelhofer Hafen Tempelhof airport played a leading role during the Soviet blockade of 1948/49, during which West Berlin was supplied from the air by the Allies. Tempelhofer Hafen also served as a major supply hub, receiving coal, foodstuffs and other supplies so desperately needed across the western sectors of the city. Tempelhofer Hafen is now situated to the west of an industrial area. A revitalisation programme was launched in 2007 to restore the harbour area and warehouses and the Tempelhofer Hafen shopping centre was completed and opened in Directly opposite, on the other bank of the 7

8 Portrait of a district Teltow Canal, is the famous Ullsteinhaus. It was designed by Eugen Schmohl, the architect who was also responsible for the Borsigturm in Tegel. The building was constructed using a precast reinforced concrete skeleton covered with characteristic red bricks. Axel-Springer-SE, one of the largest digital publishing houses, now prints its newspapers in the Ullsteinhaus, whose other tenants include a range of other businesses and enterprises. The underground station Ullsteinstraße, served by the U6 line, couldn t be closer. From here it is just 15 minutes to Gendarmenmarkt, and only a couple of minutes more to the main Friedrichstraße station. The A100 motorway cuts across the district from east to west, as does the S-Bahn city railway with its S45, S46, S41 and S42 circular lines. Architecture in Tempelhof While the former airport dominates the north-eastern section of the district and the south-eastern edge is dominated by business and industry, the most easterly edge of Tempelhof is home to a garden memorial. The Bärensiedlung, planned by Gustav Hochhaus and built between 1929 and 1931, is home to more than 900 apartments that appear as a single block from the outside, but have four separate entrances to the gardens. To the north-east is a development with 16,000 apartments, the largest construction project of its time, which was started in 1911 and finally completed, after a number of interruptions, in New-Tempelhof, also known as the Fliegerviertel (Pilots Quarter), is a perfect example of the perimeter block developments and garden-style housing developments of the 1920s and 30s, as well as displaying characteristics of the large-scale development of housing in the 50s and 60s. To the south of the Berlin Ringbahn (Circular Railway) is Alt- Tempelhof. The village church survives to this day and was originally part of a Commandery, a type of hostelry and farm, established here by the Knights Templar at the beginning of the thirteenth century. The main village street and the site of the original village green can still be identified today. In the northwestern corner of Tempelhof, there is another symbol of national socialist architecture. The architect Albert Speer, commissioned with designing the Nazi s Germania metropolis, constructed a massively heavy structure here to simulate the effects of a massive triumphal arch on the city s underground train system. As the 12,500 ton cylinder of concrete and reinforced concrete is located between residential neighbourhoods and in such close vicinity to the S-Bahn tracks, it was decided not to blow it up after the Second World War and it remains to this day. Rental prices vary Given the variety of building types and ages in the district, it is no surprise that rents across Tempelhof also vary considerably by area and market segment. On the whole, rents are Development of rents in /m²/month Berlin Tempelhof-Schöneberg Berlin-Tempelhof Sep 12 Nov 12 Jan 13 Mrz 13 Mai 13 Jul 13 Sep 13 Nov 13 Jan 14 Mrz 14 Mai 14 Jul 14 Sep 14 Nov 14 Jan 15 Mrz 15 Mai 15 Jul 15 Sep 15 Source: immowelt.de/immobilienpreise 8

9 Portrait of a district below the Berlin average. In Tempelhof-Ost, to the south of Tempelhofer Feld, the average rent stands at 7.80 per square metre. In the lower market segment, the figure is 5.55 per square metre, just above the Berlin average of 5.50 for this segment. At the upper end of the market, tenants are paying an average of per square metre per month. In Tempelhof-Schöneberg and Berlin, the averages in this segment are and per square metre, respectively. Rents in Tempelhof-Nord and Alt-Tempelhof are very similar, at 8.04 and 8.03 per square metre, below the average for the district ( 8.47 per square metre) and the city as a whole ( 8.55 per square metre). At the lower end of the market, Alt-Tempelhof is almost 50 cents more expensive than Tempelhof-Nord ( 6.00 per square metre). At the top end of the market the figures diverge further, ending up both under and over the district average of per square metre and the Berlin average of per square metre. Rents inside the Berlin Ringbahn in Alt-Tempelhof are an average of per square metre, whereas to the north of the S-Bahn ring in Tempelhof-Nord figures of up to per square metre approach the levels recorded in neighbouring Schöneberg. Small, affordable apartments Apartments in Tempelhof-Nord, at an average of 60 square metres, are around twelve square metres smaller than the district average a result of the smaller-scale apartments built in the 1920s and 30s. In Alt-Tempelhof and Tempelhof-Ost apartments are not much larger, averaging 62 and 63 square metres respectively and falling below the district average of 72 square metres and the Berlin average of 71 square metres. Less space naturally means lower living costs. Tempelhof scores highly in this regard in comparison with neighbouring Schöneberg. Those living in Tempelhof-Nord have to find an average of around 647 per month to cover their living expenses. Further south, in Tempelhof-Ost, the figure increases to 671 per month, and in Alt-Tempelhof the figure rises by another five euros. A glance at the figures for rental price developments shows that rents in Tempelhof have been developing more dynamically than rents in Schöneberg. Rents in Schöneberg have risen more slowly than the year before. Nevertheless, rents in all of the neighbourhoods mentioned above are still below the district average ( 810 per month) and the Berlin average ( 780 per month). Cold rents in /m²/month 20 Upper market segment Lower market segment 15 All market segments Berlin Tempelhof- Schöneberg Tempelhof- Nord (12101) Alt-Tempelhof (12101) Tempelhof- Ost (12099) Source: Housing report Berlin 2015 CBRE & Berlin Hyp 9

10 Apartment buildings of the month Altbau apartment building in quiet Berlin-Neukölln neighbourhood Price: EUR 1,810, plus. 7.14% sales commission (incl. VAT) Yield: 4.75% Price-to-rent multiplier: Price per m²: EUR 1, (Please quote property reference code when placing an enquiry) The property, a mixed-use residential/commercial building, was built around 1900 in the vicinity of Karl-Marx-Straße and comprises 15 residential units and one commercial unit, all of which are accessible via a single staircase. The buildings loft space was converted in the 1990s to create two penthouse apartments with rooftop terraces facing to the south and east. The apartments range between 40 and 90 square metres. They are largely fitted with balconies and all have tiled bathrooms with bathtubs or shower/ bathtubs, wooden floorboards or laminated flooring and stucco moulding features. Heating is provided via gas heating systems. Over the last few years, Neukölln undergone a rapid positive development and is now one of Berlin s most popular residential neighbourhoods. Karl-Marx-Straße, a major shopping street lined with shops, restaurants and cafés, is just 200 metres from the apartment building, and has enjoyed a massive renaissance in recent times thanks in part to its popularity with new Berliners. Public transport connections couldn t be better. It s a mere five minutes on foot to the nearest underground and S-Bahn stations. Information acc. to energy performance certificate: Year built: 1900; final consumption: kwh; heating type: self-contained central heating; energy source: natural gas; energy performance certificate dated: , expires Two attractive residential properties in popular Lichterfelde-West Price: EUR 3,268, plus. 7.14% sales commission (incl. VAT) Yield: 4.06% Price per m²: EUR 2, (Please quote property reference code when placing an enquiry) The two apartment buildings in Lichterfelde-West, part of Berlin s Steglitz-Zehlendorf district, were built at the beginning of the 1990s and have recently undergone extensive renovation. The lofts of the twostory properties have each been converted to create additional living space. There are a total of 18 residential units ranging between approximately 60 and 100 square metres. Each building has its own doors and staircases providing access to the apartments and there are three apartments per floor. All of the units are currently tenanted. The buildings, with comprehensive thermal insulation, are technically in a good condition and the gardens and other outside spaces are well-maintained. There are on-site car parking spaces. The two buildings are located in a quiet neighbourhood at the heart of a residential suburb populated with detached houses and small multi-family homes. The local infrastructure is well-developed, with convenient shopping, nurseries, and public transport connections all within easy walking distance. Information acc. to energy performance certificate: Year built: 1993; final consumption: 122 kwh; heating type: central heating; energy source: oil; energy performance certificate dated: , expires

11 Apartment buildings of the month Mixed-use residential/commercial property in first-class location in Berlin-Köpenick This mixed-use residential/commercial property with converted loft space is situated at the heart of Berlin-Köpenick, within easy walking distance of the nearest S-Bahn station. The building has been extensively refurbished and modernised over the last few years and contains seven apartments and a number of commercial units. The apartments vary between 70 m² and 100 m². The property is fully let. Given its proximity to the S-Bahn station and to connections with numerous tram and bus lines, access to the city s public transportation network is optimal. Information acc. to energy performance certificate: year built: 1907; final consumption: 55 kwh; heating type: self-contained central heating; energy source: natural gas; energy performance certificate dated: , expires Price: EUR 2,950, plus 7.14% sales commission (incl. VAT) Yield: 4.60% Price-to-rent multiplier: Price per m²: EUR 2, (Please quote property reference code 7338 when placing an enquiry) Credits Dr. ZitelmannPB. GmbH, Rankestraße 17, Berlin Authorised representative: Dr. Rainer Zitelmann / HRB B MICHAEL SCHICK IMMOBILIEN GMBH & CO. KG Investmentmakler, Rheinbabenallee 40, Berlin Authorised representative: Ju rgen Michael Schick Telephon: 030 / , info@berliner-zinshaeuser.de Photos: Dr. ZitelmannPB. GmbH, MICHAEL SCHICK IMMOBILIEN & CO. KG, shutterstock 11