Berlin Residential Investment Market

Transcription

1 Berlin Residential Investment Market News Update on Berlin s Rental Housing Market April 2010 The Berlin News by 2.8 percent since They manifested their steepest Expectations Have Grown The findings of the 6 th Housing Market Survey for Berlin show that the housing market of Germany s capital manifests a bottleneck trend in the upper segment and a trend toward higher rents rates and prices. Rents rose in nearly all boroughs and market segments. While prices in the lower segment of the homeownership and investment market dropped unchecked in 2009, they actually increased in the mid-, and positively soared in the top segment. Investors: Willing to Accept Higher Prices as long as the Quality is Right On the condominium and investment markets, however, the trends differ from one borough to the next. Medium prices for multi-family homes rose most sharply in Neukölln, Spandau, and Steglitz- Zehlendorf. Most expensive are Charlottenburg- Wilmersdorf and Steglitz- Zehlendorf, just as they were in The lowest figures are reported from Lichtenberg and Mitte. The low figure in the borough of Mitte is explained by the fact that the majority of offers come from the blue-collar districts of Wedding and Source: GSW / CB Richard Ellis growth in Mitte and Friedrichshain-Kreuzberg, and this is where prices are highest, too. The lowest quotes in the condominium segment are found in Spandau and Neukölln. Here, the quoted prices would have to rise by 60 percent to close the gap to Berlin s mean. Tenants: Favouring Great Apartments in Great Urban Locations Just like in 2008, the most attractive green suburbs and sought downtown areas in Charlottenburg-Wilmersdorf, Mitte, Prenzlauer Berg, and Friedrichshain-Kreuzberg were very much in demand among Berlin s tenants. Theses are the areas where the highest rent rates for re-let apartments were paid even in 2008, and from where the steepest rent hikes were reported in Given the low level of new housing construction and the scarcity of historic properties suitable for premium redevelopment, the rising demand for high-end apartments in sound locations caused above-average rent hikes in the top segment. For Berlin as a whole, the mean rate for the top ten percent of quoted rental apartments climbed by six percent last year. During the same time, the overall mean of all quoted rents on Berlin s housing market rose by 4.5 percent in Moabit. As far as investment properties go, the market The price increase in the lower segment averaged three shows a slight 0.4 percent price increase overall after the percent. Spandau, by the way, is the only one of the city s decline of On the condominium market, prices rose twelve boroughs where rents remained unchanged in 2009.

2 Berlin Residential Investment Market Issue 3 / April Column Comparing the vacancy rate on Berlin s housing market The Vacancy Myth von Dr. Rainer Zitelmann Then as now, stereotypes persist that caution against investments on Berlin's residential market particularly among institutional investors. One of the critical arguments most frequently levelled is the supposedly high vacancy rate on the capital s housing market. Here are the facts: According to the Techem-Empirica Index, the vacancy rate on Berlin s housing market is 4.2 percent. Just 71,000 apartments with active market status actually stand empty. A closer look will reveal that there are large discrepancies between the boroughs. People outside Berlin tend to forget one thing: Each of Berlin s boroughs is the size of a typical major city in Germany. The population of Pankow alone is 363,250, that of Mitte 331,573, and that of Charlottenburg-Wilmersdorf 318,685. So stats covering the whole of Berlin are less than meaningful. For in many of the city s boroughs, the vacancy rate clearly undercuts the German average of 3.7 percent. Steglitz-Zehlendorf and Treptow-Köpenick, for instance, report a vacancy rate of just 2.4 percent. In vacant, all of 2.9 percent in Reinikendorf. The only boroughs where the vacancy rate is alarmingly high are prefab-dominated Marzahn- Hellersdorf (9.2 percent) and On the popular office markets, the vacancy is much higher than on Berlin s housing market. with the vacancy figures of Germany's office hubs will put things in perspective. According to calculations by DIP/Aengevelt Research, the office vacancy in German metropolises favoured by investors far exceeded that of the Berlin housing market. In Frankfurt, 14.3 of the office space stands empty, 10.3 percent in Düsseldorf, 9.7 percent in Munich, 8.4 percent in Berlin, and 8.3 percent in Cologne. These are the very cities where open-ended real estate funds which consistently steer clear of residential real estate have happily invested for decades, to cite but one example. It is an approach of dubious success. According to the DIX German Real Estate Index most recently published, the total return in the office segment equalled a mere two percent last year, and it clears the inflation rate of 2009 by a margin of just 1.1 percent. The ten-year average for returns on investment on the German office market is 2.6 percent and thus just one percentage point more than the mean inflation during that period. By contrast, the total return for residential real estate, according to the IPD stats, equalled 5.3 percent last year, topping the inflation rate by 4.4 percent. And hey, even over a ten-year period, an average total return of 4.4 percent on residential real estate is not at all bad. I would like to have someone explain to me why openended real estate funds to stick to my example Friedrichshain-Kreuzberg, 2.8 whose claim to fame is their percent of the apartment are balanced risk diversification commit less than one percent of their capital in residential and two-thirds in office real estate. The high vacancy rate on Berlin s housing market is a thing of the past. Today, it is just Neukölln (6.1 percent). Neither borough is particularly another myth. Out of the 15 office markets that popular among investors or among Berliners, for that DIP/Aengevelt Research monitors, only one market matter. Personally, I made my finest investment in the one in Bremen shows a lower vacancy rate than Neukölln of all places. This is a fully let house of 24 the cross-borough average of Berlin, and it is but a units, of which 40 percent are student share rentals that slight margin at that. benefit from the low rent level (4.60 Euros/sqm).

3 Berlin Residential Investment Market Issue 3 / April Market Performance Apartment Buildings Bolster Berlin's Real Estate Sales von Jürgen Michael Schick, MRICS Apartment buildings tend to be favoured during times of uncertainty. The stats released by Berlin's Committee of Surveyors suggests as much. Did you know that residential and business buildings accounted for one third of the entire cash turnover on Berlin s real estate market last year? Apartment buildings showed a 27-percent increase in sales since 2008, whereas office and business property sales plummeted by 40 percent during the same period. Commercial real estate accounts for only 40 percent of sales that are generated with both residential and commercial buildings in Germany's capital. It is safe to conclude that the apartment building market outperforms the commercial real estate market. In 2009, residential and commercial real estate sales added up to 1,908 million Euros. A total of 1,303 sales transactions are on record. In terms of monetary turnover, this translates into a 3-percent decrease compared to 2008, and 7-percent dip in the number of transactions. In the sub-segment of pure apartment buildings, the monetary turnover actually rose by 27 percent, though. These figures seem particularly striking when you consider just how the commercial real estate market is perceived in contrast to the market for apartment buildings. And this even though sales of commercial real estate (office and business buildings, including retail property) plunged from 1,296 million Euros in 2008 to just 775 million Euros in Who was it again who said the other day that residential is out and commercial in? The members of Berlin's Committee of Surveyors attribute the robust demand for apartment buildings to the general assessment that apartment buildings are safe investments whenever inflation is a perceived threat. With a view to the longterm perspective, it was said that, following the boom years of 2006 and 2007, real estate sales in Berlin reverted to a normal level last year. To say that Berlin s real estate market remained essentially untouched by the financial crisis would be glossing the facts, in my opinion. But with all real estate categories experiencing a drop in sales, and only apartment buildings achieving a 27 percent increase, Berlin s apartment buildings are arguably the winners of the crisis. Development of the sales transaction figures Source: Gutachterausschuss Berlin For real estate buyers, it is surely interesting to learn at which average square-metre price apartment buildings changed hands. In 2009, the average price approximated 680 Euros per square metre, down from roughly 700 Euros per square metre in This is astounding insofar as the Committee of Surveyors, too, noted that the highest transaction density was found in inner city areas, whereas demand was weaker in remoter districts. Most real estate sales were transacted in downtown East and West Berlin, including Friedrichshain and the areas connecting Kreuzberg and Neukölln. The analysis of market events also shows clearly that the action of the apartment building market is on the level of single transactions. Less than one percent of all apartment buildings sales represented so called portfolio deals.

4 Berlin Residential Investment Market Issue 3 / April Multi-family building sales in 2009 (including partial business usage) Source: Gutachterausschuss Berlin According to the Berlin Committee of Surveyors, the market gathered momentum in Q4 2009, following a rather sluggish period. It does not take a lot of imagination to predict that the coming months will see this stable tendency continue. Virtually all banks consider the apartment building market in Berlin to be ripe with opportunity. Our experience at the moment is that given a sound credit rating you will have no problem to obtain financing. Since buyers, too, have generally come to pursue a stable long-term investment strategy they tend to have sufficient equity capital on hand for a given acquisition. The head of real estate financing of a leading private bank in Berlin aptly captured the situation when he said: Conservatism has returned to the market. Today s buyers are looking for stable real estate in sound locations with a clear risk/reward profile. To be sure, this is bound to create temporary demand back-logs every now and then. It can take time to find great properties in attractive locations. That said, Berlin s real estate market is so vast that any lead is bound to hit upon a suitable offer for an apartment building. That is, unless you are still looking for a stuccoed trophy residence in a central Charlottenburg location for a multiple of 12 times the annual net rent. Portrait of the District Reinickendorf Tradition and Modernity in Perfect Harmony Act that merged the communities of Reinickendorf, Wittenau, Tegel, Heiligensee, Hermsdorf and Lübars as well as three manor districts to form Berlin s 20th administrative district under the name of Reinickendorf. Reinickendorf is a borough in the Northwest of Berlin that, while never having been wealthy and prestigious, has always had a unique flair. Indeed, Reinickendorf represents the true Berlin: Decidedly blue-collar and down to earth, it is a straight-laced, genial area. This is where tradition and modernity come together in a union that forms the people, architecture, and economy of the borough. The origin of Reinickendorf dates back to the year At the time, a peasant named Reinhardt from Lower Saxony founded a hamlet he called Reinhardt s Dorp, or Renekentorp in Low German. The borough itself was not created until 700 years later. On April 27, 1920, the Prussian State Assembly passed the Greater Berlin Borough of Reinickendorf, districts (BishkekRocks, March 2007)

5 Berlin Residential Investment Market Issue 3 / April An Attractive Business Location Reinickendorf is known as a traditional industrial site. At the end of the nineteenth century, big industry names like Borsig set the pace for the local economy. Today, the borough is home to global players like MAN, Otis, Motorola or oracle, as well as to innovative SMEs and trade shops. In addition to a business-minded administration, the borough boasts a well developed infrastructure. So it came as no surprise when Reinickendorf was voted Most Economy-Friendly Borough throughout Berlin by the Chamber of Industry and Commerce, the Chamber of Crafts and Trade, and by the Tagesspiegel daily in Borsigturm Berlin s First Office Tower Borsigtor and Borsigturm gate and office tower of the former Borsig works, are relicts of the by-gone industrial era. Both edifices are closely associated with the history of the mechanical engineering corporation Borsig. Borsigtor and Borsigturm (Jcornelius) massive round brickwork towers and battlements, the gate quickly became the hallmark of the Borsig headquarters. Borsigturm, in turn, was built in 1922 in response to the crammed conditions on the premises. Standing 65 metres tall, this twelve-storey building become Berlin s first high rise, and it is used as an office building to this day. Airport Closure to Upgrade the Borough s Status For all Berliners rich or poor, Reinickendorf is known as the borough where the city s main airport is located Berlin-Tegel (THX). Anyone coming in by air via Tegel will be familiar with the Borsig works, Lake Tegel, and the Waldidyll estates or will at least have seen them from above. So far, the quarters around the airport, including Provinzstrasse, Kurt-Schumacher-Platz and Eichborndamm, may have seemed less than enticing to many local residents because all of these areas are located directly in the approach pattern to Tegel Airport. Due to the noise level, the vacancy rate in Tegel is the highest in the borough at 3.6 percent. Yet the airport s closure that is scheduled for the fall of 2011 will boost the attractiveness of Reinickendorf as residential district, and there is a very real chance that it will bring the vacancy rate down. In the core district of Alt- Reinickendorf vacancies are already very low. Here, just 0.9 percent of all apartments stand empty. Compared to other boroughs in Berlin, the mean vacancy rate of Reinickendorf as a whole is anyway minimal at 2.2 percent. In 1837, Johann Friedrich August Borsig founded a mechanical engineering works that was to develop within 60 years into the biggest supplier of steam engines in Europe. Until 1840, engines, rolling stock, and technicians were imported from the United Kingdom. That is, until Borsig proved that Germans were able to built railroad equipment every bit as good as that of British make. In 1894/1895, Borsig relocated to a new compound in Tegel, which the gate and the tower commemorate to this day. Borsigtor formed the entranceway to the former factory grounds, and with its Märkisches Viertel Quarter of Model Character Märkisches Viertel is the youngest and most modern district of Reinickendorf, and it is universally considered a model of accomplished urban planning. In the postwar period, the city s partition exacerbated the housing situation in both East and West Berlin. Through the 1960s, the cityscape was marked by allotment cottages and emergency shelters. The island situation of West Berlin called for a solution that offered ample living space on a minimum of land and the idea of Märkisches Viertel was born. Between 1963 and 1974

6 Berlin Residential Investment Market Issue 3 / April about 17,000 apartments were raised on just 3.2 square kilometres, future home to a maximum of 50,000 people. A total of 35 German and foreign architects created Märkisches Viertel as an urban landscape of apartment high rises, shopping malls and service centres as well as parklands. To this day, this Reinickendorf district is praised for its model character. In 2008, GESOBAU, the largest owner and lessor at Märkisches Viertel, started a brisk refurbishment program involving more than 13,000 apartments. The project has an investment volume of 440 million Euros and is to extend over an eight-year period. It is considered the largest revitalisation project in German housing construction today, with model character for the sustainable conversion of large-scale estate housing in Germany. View of Märkisches Viertel (Lienhard Schulz) Märkisches Viertel counts among the liveliest, most modern, and most tenant-friendly housing estates in Berlin. Served by both underground and urban mass transit train, it has direct and quick connectivity to downtown Berlin. The Fontane-Haus event and cultural centre, the indoor swimming pool, and the sports and recreational facilities are highly appreciated by residents, and serve as popular hangouts. In 2002, Märkisches Zentrum was expanded by another 10,000 square meters, and together with Märkische Zeile forms one of the largest shopping malls in Berlin. The fact that residents live here for an average tenancy of 17 years testifies to the popularity of the quarter, and many of the residents have actually lived in the same apartment since the project s completion. Differing Rent Levels Taking a closer look at rent rates in Reinickendorf, you need to differentiate between the several locations. In one standard location, the benchmark rent meaning the most commonly quoted rent rate approximates 5.70 Euros per square metre, according to the IVD Rent Table. Thus, the benchmark rent slightly undercuts Berlin's overall average of 5.75 Euros per square metres. If you wish to live in preferred locations in Reinickendorf, such as Frohnau, you should brace yourself for 7.10 Euros per square metre. Here, Reinickendorf slightly exceeds the Berlin average of 6.98 Euros for this type of location. Housing Costs below the Berlin Average The housing cost ratio remains below the citywide average in virtually all districts. This goes both for the borough s more affluent quarters and for the more traditional blue-collar quarters of Borsigwalde and Alt- Wittenau. The ratio in Borsigwalde, for instance, counts among the lowest throughout Berlin. While the quarter with an average apartment size of 56 square metres ranges at the very bottom in the Berlin, the household purchasing power of Borsigwalde residents is in the city s top third because just a fraction of the income is spent on rent. All things considered, the rent load is far lower than in adjacent districts of Spandau, Charlottenburg-Wilmersdorf, and Pankow. According to the 2009 Housing Market Report compiled by the Berlin-based GSW housing company and real estate service provider CB Richard Ellis, the average resident of the borough of Reinickendorf spends just 21.6 percent of his or her income on the monthly rent. It is not just the low housing cost burden, though, that makes Reinickendorf a popular residential borough. Its woodlands and nature reserves are perfect for hiking and cycling. Lake Tegel offers amply opportunity for aquatic sports. And public lakefront beaches promise recreation and pleasure galore to families and swimming enthusiasts.

7 Berlin Residential Investment Market Issue 3 / April Apartment Buildings of the Month Impressive Apartment Building in Green Corner Location in Tempelhof This apartment building is located in the district of Alt-Tempelhof near Bosepark, one of the finest residential neighbourhoods in the borough of Tempelhof. Tempeldorfer Damm with its manifold shopping venues lies within easy walking distance, as do the underground station Alt-Tempelhof and Kaiserin-Augusta-Strasse, from where it is just a 15 minute ride to the historic town centre Berlin. The infrastructure is perfectly developed, providing schools, day care centres, and sports facilities. This corner building was raised in 1910 and includes four storeys. All things considered, it is in sound condition. The roof was redone a few years ago, the apartments which feature parquetry and copious stucco elements have been regularly maintained and modernised. The attic remains undeveloped, and extends over a space of about 450 square metres. Purchase price: 1,525,000 plus 7.14% sales commission, yield rate: 6.75% Attractive Apartment Building in Friedrichshain This property is located in Berlin s Friedrichshain district in a historic residential neighbourhood. The proximity to the development area on Eldenaer Strasse with its extensive residential and service sector projects lends a particular development potential to the location. Combining residential and business units, the property consists of a front building, a wing on the left, and a back building. It is in sound technical condition. The units in the front building are fitted with central gas heating. The apartments in the side and back buildings each have their own gasfired heating units. The front building includes an external elevator that extends all the way up to the developed attic. Two rental units are currently vacant. Purchase price: 1,890,000 plus 7.14% sales commission, yield rate: actual 6.4%, target 7.2% Nice Residential/Commercial Property between Ku damm and Fasanenplatz This combined residential and business building is located in downtown West Berlin near Kurfürstendamm in the Berlin's Wilmersdorf district. The surrounding area is defined by well-maintained multi-storey office and residential buildings. The Uhlandstrasse and Spichernstrasse underground stations are just minutes away. The five-storey building was raised in 1967 on a plot of about 1,017 square metres, and consists of 13 residential and 4 commercial units, all of which are let. The property could be topped up by another two full-scale floors. There is moreover the option to expand the space on the ground floor. A building permit for thermal insulation in compliance with the Energy Saving Ordinance has already been obtained. Several car parking spaces are available on the premises. Purchase price: 2,700,000 plus 7.14% sales commission, yield rate: 6.4% 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, BishkekRocks, Jcornelius, Lienhard Schulz, Bezirksamt Reinickendorf