Berlin Residential Investment Market

Transcription

1 Berlin Residential Investment Market News Update on Berlin s Rental Housing Market September 2013 Berlin News Construction Making an Impact Berlin's housing market is showing first signs that the strain is easing: According to an analysis of the IVD Federal Investment and Asset Management Association, the accelerating housing construction has already impacted rent rates. Similarly, the real estate price indices of empirica and the ImmobilienScout24 real estate portal show: The times of steep rent hikes are over. More Completions in 2012 A recent publication by the Federal Statistical Office put the number of flats completed nationwide in 2012 at 200,500, a clear increase year on year. Specifically, the one-year growth equalled 17,400 flats or 9.5 percent. Berlin is reporting a similar trend: As the Berlin-Brandenburg Statistics Office stated, more than 5,417 flats were completed in the German capital in 2012 an increase by 20.6 percent year on year. Construction Puts Damper on Rental Growth The IVD recently determined that the increased housing stock has already checked the uptrend of rent rates. According to the IVD Residential Rent Table annually compiled by the real state association, rents on new leases are currently at 6.90 euros per square metre. This implies an increase by 20 Cents per square metre, or around three percent within the past twelve months. In the case of rents on new leases in preferred locations, the square metre rent was even slower to rise: It climbed from 8.20 euros / sqm to 8.40 euros / sqm, an increase by just 2.4 percent. During the same period last year, rents in either location rose by eight percent. Housing completions (in 000s) in Berlin, 2006 through 2012 Number of Completed flats Source: Berlin-Brandenburg Statistics Office The empirica real estate price index reached a similar conclusion, if for Germany as a whole. It suggests that, compared to the second quarter of 2012, rent rates in Q thus rose by 3.3 percent. Quarter on quarter, though, empirica diagnosed stagnation. Similarly, the IMX real estate price index by the ImmobilienScout24 real estate portal reveals: In July 2013, asking rents in Berlin climbed by a mere 0.5 percent month over month. In the cities of Frankfurt, Cologne, Munich and Hamburg, the IMX actually registered softening rents. IVD: More Housing Construction Needed in Berlin The IVD interprets the latest rental trend as a clear sign that housing construction is the only long-term solution against brisk rental growth. That said, the association added that the number of flats completed to date is far from enough Berlin urgently needs additional flats.

2 Berlin Residential Investment Market Issue 5 / September Interview with Jörg Schwagenscheidt, GSW Immobilien AG No End in Sight for the Uptrend Rent rates in Berlin have soared in recent years. According to the 2013 Housing Market Report by GSW / CBRE, asking rents rose by 13.8 percent in With this in mind, is an investment still a paying proposition? Yes, it is, says Jörg Schwagenscheidt, the Co-CEO of GSW Immobilien AG. He also told us which boroughs and which market segments have the highest appreciation potential. Mr Schwagenscheidt, the IVD Federal Investment and Asset Management Association determined that the accelerating housing construction in Berlin has caused rental growth to slow in Berlin. Is the end of the upward trend in sight for Berlin? We see no signs for an end to this trend. Rather, we assume that rents in Berlin will keep pushing up in the coming years. The key reason is the growing population. The rental growth dynamics will admittedly slow down in the medium term, slowed by the rise in construction. But this does not mean that the current construction volume will suffice to accommodate the housing needs of Berliners in the coming years. What does this mean on the borough level? What are the trends you have identified? Especially the popular inner-city wards have begun to show signs of saturation. Here, the housing demand will remain high because of the strong inflow of new residents. Households with lower incomes are relocating to outlying districts beyond the rapid-transit circle line and to the suburbs. There, the costs of living are obviously lower than downtown. Also, you still find reserves on the city's periphery. Flats in Berlin's bottom market segment will remain in demand. What do you make of the plans by some political parties to cap (or keep capping) rents in Germany? I find them very ominous. Then again, this is an election year and housing is always a good subject for drumming up support. Personally, I do not consider it a good idea at all to keep capping rents. The effect of such regulation is that it scares off investors otherwise willing to build homes in Berlin. The only way to remedy the contraction of the housing supply, however, is to build more homes. The price level in Berlin has pushed up in recent months where would you say is it still worthwhile to invest? The boroughs of Neukölln, Lichtenberg, Schöneberg and Wedding, among others, are still defined pent-up demand and offer interesting investment opportunities. In recent years, investments were to a large degree limited to high-end residences in downtown Berlin. Lately, the focus has begun to shift, as many investors show keener interest in the lower market segment. This mirrors the expectation that this residential segment will remain very much in demand and that investments will pay off accordingly.

3 Berlin Residential Investment Market Issue 5 / September Berlin is developing more and more into a Column boomtown for young entrepreneurs and is considered the most attractive location for the Boomtown for Young Entrepreneurs by Dr. Rainer Zitelmann According to the official statistics on business startups, every 20 hours on average a new Internet company is set up in Berlin. A survey recently published by IBB Investitionsbank Berlin suggests: Last year, the German capital took the lead among the major German cities in the context of the digital economy, with 469 new business start-ups or 2.8 new businesses start for every 10,000 gainfully employed persons. Between 2008 and 2012, the number of newly formed Internet companies in the German capital More and more young, creative people and an increasing number of risk-sensitive people choose to realise their dream of their own business in Berlin. Internet scene. Co-founder and chairman of the supervisory board of SAP, Hasso Plattner, quipped recently that his company should commit itself more in Berlin: In Germany, SAP should bank much more heavily on the Berlin card. You simply reach a different crowd here. Fact is that young people prefer to spend the next years in the big city. The SAP founder conceded that Walldorf near Heidelberg, the company's seat, is slightly out of the way. Honestly: Would you choose a career with SAP because it is seated in Walldorf or not rather despite the backwoods location? Be that as it may: Berlin is attractive mainly for young people and the demographic trend suggests as much. The increased inflow of young people appears to be bearing fruit, the BERLINER MORGENPOST recently rose by more than 44 percent. Conversely, all other wrote. The majority of those moving to Berlin is major German cities reported substantial drops in aged between 20 and 30. Those who migrated here the number of start-ups. With a gross value added a few years back have settled down in the of 3.9 billion euros, the Internet sector as a whole meantime and started a family. As a result, Berlin contributed a share of 4.2 percent to Berlin's total has registered a positive birth rate since 2007, economic output. For the sake of comparison: defying the national trend. Berlin's building trade generates an economic output of 3.3 billion euros or 3.7 percent. At the same time, incoming migration is accelerating and is now higher than ever. What matters, The number of people working in Berlin's digital though, if you ask me, is the type of people who are economy totals 62,400 and more than one out of attracted to Berlin. More and more young, creative five is self-employed. The sector's turnover grew people and an increasing number of risk-sensitive even faster than the number of businesses. While people choose to realise their dream of their own the latter increased by 16.5 percent between 2009 business in Berlin. It goes without saying that all of and 2011, the turnover for the same period of time this is very good news indeed for Berlin's residential rose by 21 percent to nearly nine billion euros. property market.

4 Berlin Residential Investment Market Issue 5 / September Berliner Immobilienrunde Special Event in Berlin on 23 September 2013 The German Market for Apartment Buildings and Residential Portfolios The interest in apartment buildings and residential portfolios among institutional investors and family offices remains as high as ever. But what about the supply side? And is the buy-and-hold strategy still a paying proposition, or should buyers of housing estates and apartment buildings shift their focus to value levers such as privatisation and redevelopment? Which business models still turn a profit? And what impact is the rent control debate having on the earnings expectations of buyers? This seminar will draw on hands-on examples by investors and simultaneously provide an exhaustive overview of the latest market data on residential portfolios and apartment buildings. Previous events on the subject scored average attendee ratings between 1.4 and 1.9. Speakers: Christian Schulz-Wulkow, Ernst & Young Jacopo Mingazzini, ESTAVIS AG Real Estate GmbH Dr. Daniel Piazolo, IPD Investment Property Databank GmbH Dr. Wulff Aengevelt, Aengevelt Frank Wojtalewicz, d.i.i. Deutsche Invest Immobilien GmbH Jürgen Michael Schick, MRICS Immobilien GmbH & Co. KG Sven Keussen, Rohrer Immobilien GmbH Arndt Krienen, Westgrund AG Please request your copy of the program at: info@immobilienrunde.de Berliner Immobilienrunde Special Event in Berlin on 07 November 2013 Europe's Leading Boom Market Berlin 2014 Berlin is the world's second-most popular metropolis among international investors far ahead of London, Paris, or Moscow (PWC / URL 2013). Berlin is the no. 1 in project developments in Germany ahead of Hamburg and Munich (BulwienGesa 2013). Berlin ranges in third place among the world's most sought metropolises for new market entries in the retail trade ahead of Paris, Tokyo, London and New York (CBRE 2013). Berlin is running out of office space due to the relocation of new Internet and media firms to the city. Berlin's transaction market for apartment buildings is larger than those of Munich, Hamburg, Frankfurt and Cologne combined. In a word: Berlin is Europe's leading property boom market. Speakers: Stefanie Frensch, HOWOGE Thomas Keindorf, mfi management für immobilien AG Jörg Schwagenscheidt, GSW Immobilien AG Axel Dyroff, of Schultz und Seldeneck, attorneys at law Stefan Klingsöhr, Klingsöhr Group Rabin Savion, ADO Properties Yaron Zaltsman, ADO Group Helmut Kunze, NCC Germany Dirk Moritz, Moritz Group Please request your copy of the program at: info@immobilienrunde.de

5 Berlin Residential Investment Market Issue 5 / September Market Trends Capping Estate Agent Fees? Could it be that estate agents fees have by Jürgen Michael Schick, MRICS experienced such hefty increases in recent years that lawmakers need to step in? Or could a case for At the start of next year, Berlin will intervention be made because fees are as raise its real estate transfer tax once more. This time around, though, the Christian Democrats in the city's parliament had the exorbitantly high as in other sectors, such as in the brokerage of private health insurance? Neither of these arguments holds water because estate agent's fees have not changed in decades. brilliant idea to keep transaction costs level for buyers and to allocate the one-percent increase in real estate transfer tax to the estate agents instead by reducing their fee by one percentage point by law. What has changed in Berlin is the raised real estate transfer tax, and substantially so. Having stood at two percent at the end of 1996, it has since gone up to six percent a 200-percent tax hike in less than Except for estate agents, no two decades. Is it not one will lose any sleep over it, bigoted if lawmakers raise Is it not bigoted if lawmakers raise and some may actually rejoice. transaction costs, insofar as transaction costs, insofar as they are So let us disregard the they are subject to their concerns of estate agents for a moment which I happen to subject to their control, by several hundred percent and then eliminate control, by several hundred percent and then eliminate represent in the IVD Federal the freedom of contract for the freedom of contract for estate Investment and Asset estate agents, whose agents, whose brokerage fees have Management Association and brokerage fees have remained unchanged? take a close look at what remained unchanged? happened: No one is forced to commission an estate agent. Transaction costs are to be raised for all property buyers and at the same time the estate agent's fee is to be lowered for a minority of buyers. Roughly half of all property acquisitions and dispositions are transacted without an estate agent, so this group of buyers will not benefit from the relief at all. Indeed, many buyers or sellers treat without one. Whenever a buyer or seller decides to hire an estate agent, he or she tends to be motivated by the hope that the agent's services will generate considerable value-add. The idea is to hire a real estate expert well familiar with the market and with plenty of experience in local marketing, in negotiations and in The other half of the transactions is by no means automatically subject to a brokerage fee of six percent plus VAT. The fee for large transactions tends to fall noticeably short of the statutory ceiling now contemplated by the Christian Democrats. So even if the idea is actually implemented, only a minority of property buyers stand to benefit from it, whereas the increased real estate transfer tax the legal facts involved. So it is a professional services for which the brokerage is paid, just the ways it is with any other service such as headhunting except that estate agents' fees are among the most modest of service rates. This is the freedom of contract that the centre right politicians seek to curb. It is an unusual initiative for a party that pays homage to Ludwig Erhard and a affects all. socialised market economy whose principal

6 Berlin Residential Investment Market Issue 5 / September foundation is the freedom of contract. So it is to be hoped that the twisted logic will be abandoned as quickly as it was concocted. Otherwise, it might become the model for similar schemes: Lawmakers could make a habit of raising taxes while promising to relieve their constituency in other ways, e.g. by putting a lid on the fees charged by private services providers. Portrait of a District: City-West Go West Again Berlin is, and always has been, in a state of constant flux. The city is dotted with cranes, entire new districts are created from scratch, historic streets are modernised and new buildings are raised everywhere. This is true even and especially for the area called City West. Once the heart of West Berlin when the city was still divided, it has lately moved back into the focus of project developers. Quite a number of major building projects are currently under development, on a level with the Waldorf Astoria Hotel, which was completed earlier this year. Large volumes of retail and office space will come onstream in Berlin s western downtown. At the same time, housing construction has picked up steam in the city. Business Centre with an Eventful History The area called City West is shopping boulevard, promenade, research centre, cultural hub, residential district and commercial centre all wrapped into one. It includes the high-end retail locations of Tauentzienstrasse and Kurfürstendamm, renowned far beyond the city limits, and Breitscheidplatz with its landmark, the Memorial Church. City West extends The area called City West is largely located in Charlottenburg. Other districts it extends into include Wilmersdorf, Schöneberg and Tiergarten (source: Fotolia) from Tiergarten in the north, Lietzenburger Strasse in the south, Stuttgarter Platz in the west and Urania in the east. Most of it is located in the district of Charlottenburg though parts of it are located in the districts of Wilmersdorf, Schöneberg and Tiergarten. It looks back on an eventful history and remains one of the preferred tourist destinations. The current boom is not the first one for Berlin's western downtown, which had its heyday in the late 19th century. Known as the New West during the Belle Epoch, it grew into an ever more popular shopping and leisure area, competing increasingly with the old town centre of Berlin- Mitte. It was during this time that the famous Kaufhaus des Westens department store (KaDeWe) was raised. Following the Great War, the City West moved centre stage during the Roaring Twenties. Its streets turned into catwalks for the flapper chic. Film actor and director Max Reinhardt built two elegant theatres on Kurfürstendamm and large cinemas such as Marmorhaus, Capitol, and Ufa Palast dominated the great era of silent film. The area experienced a revival during the Cold War as the city centre of postwar West Berlin.

7 Berlin Residential Investment Market Issue 5 / September lettable area of 51,000 sqm, about 17,000 sqm are earmarked as retail space. Moreover, Bikini Berlin will provide office accommodation and leisure venues, including a cinema and a rooftop terrace of 7,000 sqm. The complex is scheduled to open in the fall of Memorial Church is one of the most popular sight in downtown West Berlin (photo: Fotolia) With the fall of the Berlin Wall, the New West lost its status as the heart of the city. While Tauentzienstrasse and Kurfürstendamm continued to count among the city s high-street locations and commercial hubs, it lost much of its former appeal. By the late 1990s, the area actually seemed to deteriorate, prompting debates whether to raze some of its former landmarks, such as Kudamm-Karree and Europa-Center. Another large-scale construction project in the district is the UPPER WEST, initially called Atlas Tower. This mixed-purpose building is raised right on Breitscheidplatz and will be 118 metres tall. Project developer STRABAG Real Estate already signed a lease with the Motel One chain as one of the future anchors. A special highlight of the building will be the Sky Bar on the top floor. Aside from the floor area reserved for hotel and office units, the complex will include 5,500 sqm of retail space. City West can pride itself on an active regional management that keeps promoting the area with the stated intention to establish it permanently as a business district. For instance, the Regional High-End Development Projects in City West It proved to be just another temporary crisis and the district coped splendidly: Today, City West is booming. Early this year, the BERLINER MORGENPOST ran the headline: Berlin s City West Celebrates its Comeback. Indeed, it is Berlin s upand-coming high-street retail location once again. Aside from the KaDeWe, which has never had a dull moment, luxury brands and international multiples have set up shop along Kurfürstendamm and Tauentzienstrasse. Kurfürstendamm remains a popular tourist destination and high-street retail hub (photo: shutterstock Bocman1973) The redevelopment of the Bikini building across from Memorial Church will be the next major shopping venue to go live. Originally raised in the 1950s on Budapester Strasse, Bikini House was acquired by Bayerische Hausbau in 2002 and is being turned into a shopping mall and event centre. Out of the gross Management Berlin West is developing strategies for revitalising Ernst-Reuter-Platz. And its Kluge Köpfe ( Bright minds ) initiative scouts for innovative ideas in the communication, marketing and media sector. The Aktives Zentrum subsidy program moreover sponsors a variety of structural upgrades.

8 Berlin Residential Investment Market Issue 5 / September Another building project that promises to advance the ongoing facelift of City West is the Quartier am Zoo, a new residential and business quarter. The plans call for a 160 metre residential and commercial highrise plus another five buildings of varying heights between 60 to 100 metres on a 120,000 sqm brownfield site between Zoologischer Garten railway station and Landwehrkanal. The planning was due by the architect Jan Kleinhues and the town planner Florian Mausbach, the former President of the BBR Federal Office for Construction and Regional Planning. The project has drawn mixed responses. While the government welcomes the construction of new housing, the Berlin University of Technology objects that the site had actually been earmarked for a new university building. Rental growth (cross-segment median) in the priciest locations of City West, 2008 through 2013 Education and Culture in the City West Berlin s western downtown, however, is much more than a business hub, as a look at its educational and research facilities shows. The Charlottenburg campus counts among Europe s largest uninterrupted inner-city campus areas. Hosting both the Berlin University of Arts and the Berlin University of Technology, it is home to two major international universities. Four institutes of the Fraunhofer Society and a large number of cultural facilities provide perfect conditions for the 34,000 students enrolled in both universities. Source: GSW, CBRE KaDeWe on Tauentzienstrasse a department store and shopping magnet steeped in tradition (photo: shutterstock andersphoto) Positive Demographic Growth City West is becoming ever more popular as a residential quarter. In addition to its vast retail spectrum, residents and visitors also benefit from a superb infrastructure: Zoologischer Garten railway station, in addition to providing regional service connections, is also frequented by underground and rapid transit lines. The parklands of Tiergarten, which mark the north-east boundary of City West, offer ample opportunity for recreational pursuits and serve as counterweight to the hustle and bustle of busy streets. The Borough of Charlottenburg-Wilmersdorf, which is home to the largest part of City West, registered demographic growth to the tune of 3.1 percent between 2007 and The fact that City West has become a particularly popular place of residence is reflected in the local rent rates. According to the 2013 Housing Market Report by GSW / CBRE, asking rents in almost every part of City West exceeded the Berlin median. The neighbourhoods of Sybelstrasse, Olivaer Platz and Ludwigkirchplatz clearly take the lead: Here, the going rack rent is euros per square metre. Other locations with high square-metre rents of just under euros include the wards around Savignyplatz (9.88 euros / sqm), Winterfeldtplatz (9.46 euros / sqm), and Viktoria- Luise-Platz (9.24 euros / sqm).

9 Berlin Residential Investment Market Issue 5 / September Apartment Buildings of the Month Typical Kreuzberg Property in Good Location The property offered for sale here is located in the popular Kreuzberg district. Surrounded by a rich variety of green areas, this centrally located and yet quiet property offers outstanding recreational options and a cornucopia of trendy gastronomy. Access to public transportation is great. The residential and business building was raised around Few of the units are smaller than 140 square metres. The average rent rate comes to 3.61 euros / sqm. There are altogether 30 units, the basement being let to another three tenants. The front building is heated by an oil-fired central heating system installed three years ago. Boilers and tankless heaters are used to prepare hot water. Whether the attic can be developed remains to be seen. Purchase price: 9,900, plus 4.76 % sales commission (incl. VAT), yield rate: 2.87 % Very Handsome Refurbished Belle Epoch Building This property is located in the district of Prenzlauer Berg in the Borough of Pankow. The immediate vicinity offers an excellent infrastructure with plenty of boutique stores, cafés and restaurants. The property was redeveloped and modernised in the early 1990s. It represents an impressive historic five-storey stucco building with a Belle Epoch façade. The attic has been developed into presentable residential units. The house is heated by gas-fired central heating. Most of the flats feature historic board or parquetry flooring, stuccoed ceilings and tall historic doors. Purchase price: 3,050, plus 7.14% sales commission (incl. VAT), yield rate: 4.3 % New Office Scheme in Superior Location in the City West This property is located in the core area of Charlottenburg district. Genuinely new office buildings are rather rare and highly coveted in the quarter. Having your workplace here will let you take advantage of the extended shopping opportunities on the one hand and of the richly varied gastronomic scene on the other hand. The mixed office-commercial building offered for sale here was raised in 1995 and is in excellent repair. All units are let on long-term leases. There are two store units on the ground floor. A total of ten office units are located on the six upper floors, let at an average rent of euros / sqm. The sixth floor includes two flats. The house is hooked up to district heating. Purchase price: 10,250, plus 4.76 % sales commission (incl. VAT), yield rate: 5 % Credits Dr. ZitelmannPB. GmbH, Rankestrasse 17, D Berlin Authorised representative: Dr. Rainer Zitelmann / Commercial register: HRB B Michael Schick Immobilien Investmentmakler, Rheinbabenallee 40, D Berlin Authorised representative: Jürgen Michael Schick Phone: info@berliner-zinshaeuser.de Photo credits: Dr. ZitelmannPB. GmbH, Michael Schick Immobilien, GSW Immobilien, Fotolia, shutterstock Bocman1973, shutterstock andersphoto