Berlin Residential Investment Market

Transcription

1 Berlin Residential Investment Market News Update on Berlin s Rental Housing Market November 2011 The Berlin News Housing Vacancy Rate to Decline to Two Percent by 2015 By the year 2015, the vacancy rate on the housing market of the German capital is expected to drop to four percent by 2015, effectively slashing the current rate in half, and to keep dropping down to two percent by This is the trend diagnosed by Berlin s City Hall in response to the expected increase in the number of private households in Berlin. Based on the latest figures released by the Berlin-Brandenburg Statistics Office, Berlin s Senate forecast a growth by up to 130,000 households between now and Housing Construction Lags Far Behind Household Trend For years now, Berlin has reported a shrinking housing vacancy. The growth in the number of households is not only more dynamic than the housing construction; it has outpaced the latter by far. Specifically, the number of private households in Berlin rose by an annual average of 18,120 units between 2005 and 2010 driven by incoming migration and a trend toward smaller households. However, only 3,100 new apartments were raised per year. This means Current ranking that the nearly 100,000 new private households created during this time were matched by around 15,500 new apartments only. Predictably, this development has caused the housing vacancy in the German capital to drop drastically in recent years, according to the BBU Association of Housing Entrepreneurs in Berlin and Brandenburg. As recently as 2005, the vacancy rate stood at eight percent, but had plunged to five percent by Berlin among the top 3 Attractiveness of the regional real estate markets Regional ranking increasing attractiveness In % of the total score decreasing attractiveness Figures rounded, in percent Market Experts Identify Finest Growth Perspectives According to a survey conducted by Berlin-Hyp and Landesbank Berlin, the majority of market experts believe that the developments in the residential segment will raise the demand for space, while roughly half of the poll respondents believe that the time for broad-based rent increases in the housing segment has come. In fact, the polled experts expect to see increasing transaction Development forecast for the next 12 months Source: Berlin Hyp and LBB, IMMOMENT IM TREND 1. Hj volumes in the residential segment in the coming months. They project the finest investment perspectives in the German capital, topped only by Munich and Hamburg. This means that Berlin has taken over Frankfurt s rank as third-most attractive regional real estate market. In regard to the growth forecast for the next twelve months, Berlin actually takes the lead.

2 Berlin Residential Investment Market Issue 6 / November Column I believe that the fairest solution for lessor and lessee Inflation-Protected Leases By Dr. Rainer Zitelmann Many property owners have probably tried to raise their rents after the publication of Berlin s latest Rent Table. An endeavour that can prove more complicated on the ground than you would think. For it is hardly enough to pen a letter to the tenant saying that the rent will be brought up to the level of the new rent table. Rather, you need to address a formal request for a rent increase to the tenant, and obtain the tenant s express consent to the rent increase. My experience as landlord has been that such letters will, as often as not, be answered by the tenant only after several reminders or go unanswered altogether. Some tenants will flat-out refuse their consent, while others may agree to a certain amount. This partial consent is sometimes justified and sometimes not and each case needs to be reviewed. The long and the short of it, however, is that you cannot raise the rent without the tenant s consent which must be requested to be granted in writing. If all else fails, the landlord has to sue for the tenant s consent. This will involve a major effort, cost plenty of time and money, and naturally strain the relationship to the tenant. Most landlords The fairest solution for tenants and landlords alike are leases where rent increases are tied to the growth of the costs of living, that is, to the inflation rate. both are leases whose rent hikes are tied to the growing costs of living, meaning the inflation rate. It is an approach called indexation. While being standard for office real estate, index clauses or escalation clauses are still the exception for residential leases. In this segment, few landlords are actually aware of the option to negotiate inflation-indexed leases. The truth of the matter is that the option represents the fairest type of contract for either side: The tenant can rest assured that the rent will not outpace inflation. Normally, the law permits rent hikes by up to 20 percent over a three-year period, yet a landlord tied to an indexed lease may not go ahead and raise the rent within the limits of the legal ceiling even if the rent table was to report brisk growth all of a sudden. As it were, the tenant s situation is made safer. The property owner, in turn, hedges his or her investment in an apartment block against inflation. Above all, the arrangement does away with the aforementioned costly rent-increase requests, and the landlord will no longer have to chase after tenants to obtain their consent, as the rent is automatically adjusted year after year. Landlords are well advised to weigh the advantages of it against the one-time benefit of a hefty increase that would bring the rent up to level with the latest Berlin rent table. In some cases, it may be sensible for me included have a vested interest in being on good both sides if the landlord abstains from exploiting the terms with their tenants. permissible rent increase potential in return for a consensual conversion of the lease to include an That being said, rents do need to be adjusted from time indexation clause. So if you take a long-term view as a to time, because inflation alone would otherwise cause landlord, it will most likely pay off in the long run to forgo the rent to reduce itself in economic terms even if the the temptation of a one-time rent hike. nominal amount remains the same.

3 Berlin Residential Investment Market Issue 6 / November Market Turning a Profit without Turn-of-the-Century Gems By Jürgen Michael Schick, MRICS Then as now, Berlin remains a favoured destination among tourists from all over the world. After several trips to the city, some of her visitors grow fond enough of Berlin to start studying local real estate prices, and to put their money where their mouth is and acquire a piece of Berlin in their own right. Many of those who just started hunting for a suitable property will say that they like the quarters with historic buildings best about the city, because the stucco, parquetry and tall ceilings that adorns them create a unique flair. Yet in contradistinction to the inner-city areas of other European metropolises, they will quickly realise that Berlin s housing market is also characterised by post-war buildings, and substantially so. Indeed, the housing stock of Berlin is of far more recent provenience than that of many other major cities in Europe, and apartment buildings raised between the middle and the end of the 20 th century are interspersed throughout the historic quarters in the German capital. Less than a Quarter of Berlin s Market This is something that even many native Berliners and these represent a minority as it is are unaware of: Historic buildings constitute a rather modest segment on Berlin s housing market. Just 27 percent of all apartments, or 516,000 units, date back to the years before Another 15 percent (287,000 apartments) was raised between 1918 and The largest segment by far is made up by apartments raised after 1948, accounting for 1,092,000 units or 58 percent of Berlin s housing stock. So investors focusing on acquisition in the historic building segments are limiting their search to 27 percent of the Berlin market, or to 42 percent of the supply if you include stock dating back to the 1920s and 1930s. They will, in any case, ignore more than half of the market. Given the fact that the historic building supply is small and keeps contracting further, it strikes me as sensible to have more recently built houses on the radar, too. Indeed, there is ample reason to do so. Even if pre-war buildings carry the day in terms of elegance and charm, post-war real estate can be a paying business proposition both exciting and attractive. Buildings of More Recent Provenience Offer Plenty of Opportunities A few years back, we acquired an apartment block in Tempelhof that was raised in 1978 for an investor in Munich, and then turned the management of it over to our property manager, ATTIKA Verwaltungsgesellschaft. The Mariendorf housing estate is a former council housing project. At the time of its acquisition, the estate was in a run-down state. The going rent rate was below five Euros per square; the vacancy rate was 18 percent; tenants making late payments or skipping them altogether were not held accountable by the incumbent management. Within a matter of three years, we pushed the operating costs from 2.82 Euros per square metre down to 2.59 Euros per square metre, installed thermal insulation on the external facades, and remedied the maintenance defects. New letting pushed the rent revenues up by about twelve percent, from a targeted 425,000 Euros to an actual 475,000 Euros. Today, the estate reports full occupancy. The current market level exceeds the owner s entry level at the time of the acquisition by 40 percent. In real estate economic terms, every cent that the investor put into this initially unattractive housing estate paid off regally. The energy refurbishment, by the way, was much easier to accomplish than would have been the case with a

4 Berlin Residential Investment Market Issue 6 / November complex historic facade. A variety of provisions governing rent levels after the council housing ceilings were lifted ensure that the rents of existing leased may be raised by about 0.13 Euros per square metre and year. Since headline rents are rising at least as fast, tenants tend to go along with these increases. Privately financed housing on either side of this estate, by contrast, shows a slower increase in current rents because the rent table system often discourages such rent hikes. Quality of Location Supersedes Building Age So what segments harbour great opportunities for today s buyers? For one thing, the post-war buildings mentioned above. What has been said, however, does not necessarily apply to the sprawling housing estates, which are plagued by mounting social issues both in the eastern and in the western parts of town. The social urban development report ( Monitoring Soziale Stadtentwicklung ) compiled by the State of Berlin, speaks a clear language. At issue are rather the smaller and medium-sized estates built in the 1960s and 1970s that often cost three to five annual rents less than historic buildings next door. If these are located in attractive locations, and if there is a chance to address the specific issues on the ground proactively, a very enticing investment opportunity presents itself. Quality of location takes anyways precedence of the age category of a given building. If you wish to relocate to a specific neighbourhood, you will settle for an apartment even if it was built after WW II rather than queuing for the one out of every four apartments with an historic building substance. A fine example would be the Bayerisches Viertel ward in Berlin s Schöneberg district, because the area between the West Berlin town centre around the KaDeWe department store and Bayerischer Platz is particularly densely built up with post-war stock. Yet it would be preposterous to argue that Bayerisches Viertel is anything but attractive. I am quite convinced that the investment market will soon cause the segment of postwar buildings neglected for the longest time to gather fresh momentum. Portrait of a District: Wannsee The Perfect Place for Taking Time out raising noble mansions and leaving their mark on the district s tempestuous history. Go and get your swimming gear, keep your little sister near, and it s off to Wannsee s lakeside... It was 1951 when these lines from a hit sung by child starlet Conny Froboess popularised Berlin s Wannsee district named after the eponymous lake far beyond the city limits. Long before the tune aired on the radio, though, the lake which is actually two lakes: Kleiner Wannsee and its big brother, Grosser Wannsee has attracted locals and visitors to Berlin s southwest to spend time on seashore-sized beaches relaxing, swimming, sailing or rowing. Ever since it was surveyed, Wannsee district has been known as a working, living, and leisure retreat. It was during imperial times that politicians, businessmen and artists started to settle here, Large parts of Wannsee, in Berlin s south-west borough of Steglitz- Zehlendorf, are located on an island accessed by one of five bridges (photo credit: TUBS) A Vision Becoming Reality Up to the early days of industrialisation, the area around Lake Wannsee and the hamlet of Stolpe remained mostly uninhabited. It was a Berlin-based banker,

5 Berlin Residential Investment Market Issue 6 / November Wilhelm Conrad, who conceived of the idea to develop the area into a posh borough of townhouses and mansions. In 1893, Conrad, an avid conservationist, acquired his first piece of land, steadily expanding his estate over the years, and eventually raising Villa Alsen a mansion that set the pace for the subsequent development of the area into a manorial suburb. What Conrad had in mind was the construction of country cottages, where the fabulously well-to-do and those weary from the city s hustle and bustle would while away their summers close to water and in the bossom of nature. Adept at implementing his idea, he sold quite a number of plots to members of the exclusive Club von Berlin gentleman s club and this even though most plots measured at least 2,500 square meters. With the inflow of entrepreneurs, industrials, artists, bankers, politicians and scientists who relocated here, the Wannsee ward developed into a peerless cultural habitat that remained unrivalled during imperial times and the inter-war years. The early years of the twentieth century saw the installation of central heating, double-cased windows and other innovations in many of the luscious mansions and what had initially been intended as a mere summer retreat now evolved into a permanent place of residence for most homeowners. This mansion on Seestrasse 24 was once the home of painter Max Liebermann. He acquired the property in 1909 and counted himself lucky to be among the last to acquire one of the coveted waterfront estates in Wannsee. (photo credit: Droben) Hitler s ascent of power in Germany marked the onset of the most infamous chapter in the history of Wannsee district. For the Nazi elite, too, was drawn to the area. Joseph Goebbels, Albert Speer, and Reinhard Heydrich were among the best-known residents of this ilk. Indeed, Wannsee Conference, the meeting of Nazi brass that organised the systematic deportation and extermination of Europe s Jews, convened in the mansion at Am Grossen Wannsee 56/58. Today, the villa serves as memorial and educational institution. During WW II, the Villa Marlier mansion was used by the Nazi Government as guest house for visiting foreign police and security force dignitaries. In 1942, it gained notoriety as venue of the Wannsee Conference, convened by leading Nazi administrators to plan the systematic process that led to the Holocaust. (photo credit: Clemensfranz) An Attractive Residential Area Today, few houses and garden estates remain that commemorate the bygone splendour of Berlin s upper class and high society. While largely spared by air raids and the general havoc of WW II, many of the old buildings simply succumbed to decay during the post-war years. The mansions upkeep was extremely costly; actual ownership was often unclear; and many of the rightful owners who had fled Wannsee in the turmoil of wartime chaos later sold their properties to the State of Berlin. In keeping with the spirit of the post-war decades, many of the mansions were razed and replaced by new buildings. Even Villa Alsen, the mansion of the district s founder Wilhelm Conrad, had to make way for an apartment complex and a hotel. Buildings of more recent provenience, by contrast, have started reconnecting to the original character of the area. These include Projekt o.26 and the Wannseegärten projects, among others. Located directly at the Wannsee lakeshore, between Conradstrasse, Kaiserstrasse and Am Grossen Wannsee, the o.26 apartment complex consists of 26 houses and 14 condominiums. The Wannseegärten complex is located on a property extending over roughly eight hectares between the lake and the woodlands surrounding it. The project sees itself

6 Berlin Residential Investment Market Issue 6 / November as a modern equivalent to the lavish Colonie Alsen estate, as 80 apartments and six semi-detached units were raised in its centre, amidst lavish greenery. The project was completed in 2011 at a cost of approximately 30 million Euros. Many new building projects in the Wannsee ward live up to the idea conceived by its founder, Wilhelm Conrad: Posh new residences surrounded by nature and water, such as the Wannseegärten estate, are back in style. (photo credit: caleus capital investors gmbh) you to Zoologischer Garten railway station in downtown Berlin in just 15 minutes. Lakeside restaurants and patio cafés with their view of the lake provide particular quality of living for urban residents, and were priceless recreational venues during Cold War times when the entire city was sealed off by the Berlin Wall. Sailing, fishing, walking, swimming, running or bicycling are just some of the ways in which locals love to spend their spare time around the lake. The ward s history is closely tied to that of the Strandbad Wannsee a popular open-air lido, which is technically a part of the neighbouring district of Nikolassee. Another scenic attraction is Pfaueninsel an island folly built by a Prussian king which attracts locals and tourists alike. With its mix of vintage mansions and splendid new residences, Wannsee has remained one of Berlin s most expensive and sought residential areas. The vacancy rate equals a mere 2.3 percent at the moment, according to a market report by GSW/CBRE. The prestige associable with the location, the generally high-end fit-out of the residences, and the scenic setting are reflected in the rent rates, too. At 8.25 Euros per square meter, Wannsee significantly exceeds Berlin s average of 6.11 Euros per square meter. But since the purchasing power here is the fifth-highest in Berlin, the local housing cost ratio of 24.2 still slightly undercuts Berlin s average of 24.4 percent. Pure Relaxation Local residents appreciate Wannsee ward for its high living quality of living. Aside from its expensively decorated apartments and houses, Wannsee is simply a pleasant place to stay because of its well-developed infrastructure and a variety of leisure venues. Using the motorway or federal route through Zehlendorf, commuters are within easy reach of both Berlin s inner city and downtown Potsdam. The Berlin-Wannsee railway station offers both regional and long-distance service connections. Also, rapid-transit trains will take Kleiner Wannsee and Grosser Wannsee attract thousands of swimmers, sailors, rowers and fishermen each year. In fact, the district is home to a total of 21 sailing and rowing clubs. (photo credit: S. Hahn) One of the most popular lakefront venues since the 1930s used to be Wannseeterrassen, a patio-style landmark café that burned to the ground in In 2006, a project developer from Berlin acquired the area on Wannseebadweg, spanning 9,000 square metres. As the area is protected as a nature reserve and subject to complex zoning restrictions passed by Berlin s Senate, it proved impossible to rebuild the site quickly. Meanwhile, City Hall and project developer have come to terms, though. The new building is to be constructed much in the manner of English country cottages, and to be surrounded by a lavish garden landscape. The excursion restaurant to be placed in this setting will command a panoramic view of Lake Wannsee from a terrace extending over 100 metres. The new Wannseeterrassen venue is scheduled to open for business in summer 2013.

7 Berlin Residential Investment Market Issue 6 / November Apartment Buildings of the Month Vintage Stucco Redevelopment in Pankow-Niederschönhausen This apartment complex is located in Pankow-Niederschönhausen near the palace grounds. Greenery and parklands define the local scenery while turn-of-the-century buildings and posh embassy mansions create an elegant ambience. Many shopping venues, a cultivated gastronomic scene, and a well-developed infrastructure ensure that local residents like living here. The two houses were raised in 1892 and 1908, respectively, and were technically upgraded and successively modernised over the years, so that the apartments satisfy present-day needs. Utility lines were also replaced, while staircases and hallways were renovated and remodelled. Overall, the complex is in sound repair and makes a favourable impression. The average rent rate is 5.26 Euros per square metre. Purchase price: 1,750,000 plus 7.14% sales commission (incl. VAT), yield rate: 6.5% Parkside Living in Alt-Mariendorf The property on offer here is located in the southern part of Berlin s Tempelhof district. It is expansive and lavishly landscaped, which ties in with the green character of the Alt-Mariendorf ward. The housing estate consists of two buildings with six entranceways each, from which either seven or eight apartments are accessed. The average square-metre rent is 5.36 Euros. The housing estate represents a former council housing project. The social restrictions on the property extend through The binding rent rate equals 5.64 Euros per square metre, and may be adjusted through a profitability calculation of the cost rent. The roof area are to be leased for 7,000 Euros annually over a 20-year term for the installation of solar panels. Purchase price: 7,400,000 plus 7.14% sales commission (incl. VAT), yield rate: 6.4% Corner Building in Good Repair in Berlin-Wedding The offered property is situated close to the Bayer-Schering pharmaceuticals plant and the new headquarters of the German intelligence agency. The University of Applied Sciences is also within easy reach, and makes the location attractive for students. The Seestrasse artery will take you to Berlin s motorway orbital. The combination residential/ commercial property consists solely of a corner building. Seven apartments were recently modernised. All units feature tiled bathrooms and gas-fired heating units in each flat. The attic has been developed for residential purposes. While being of just fair quality, the property is in good repair. The average rent rate comes to 5.18 Euros per square metre. Purchase price: 1,950,000 plus 7.14% sales commission (incl. VAT), yield rate: 7.0% 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, TUBS, Droben, Clemensfranz, caleus capital investors gmbh, S. Hahn