Berlin Residential Investment Market

Transcription

1 Berlin Residential Investment Market News Update on Berlin s Rental Housing Market September 2011 The Berlin News Berlin s Attractive Investments in Existing Residential Buildings Among the seven German Class A cities, Berlin is the most attractive one for investments in existing residential buildings. This is the upshot of an expert poll that the BulwienGesa analysis institute conducted among around 100 German and international investors. Runner up was Hamburg, with Munich, Cologne, Düsseldorf, Frankfurt and Stuttgart next in line. Positive Investment Climate 57 percent of all investors rate the investment climate for existing residential property in Berlin as positive. Another 35 percent actually consider the situation for investments in residential real estate in the German capital to be very positive. The figure is twice as high as the optimistic responses for investments in newly con- structed buildings (18 per- cent very positive ). Overall, 92 percent of the investors favour existing buildings whereas 86 percent of the investors prefer to invest in new constructions. Berlin s investment market for new construction is less attractive to investors than Hamburg, Munich and Frankfurt, thus rating fourth among Ger- many s seven Class A cities. Steepest Rent Hikes Both in the new and the existing property segment of Berlin s housing market, the polled investors expect to see the fastest rent increases over the next five years. About half of all investors named Berlin in answer to this question, while only one in four identified Munich. Even fewer investors believed Hamburg would take the lead. Direct Investments How do you rate the current sentiment regarding new /existing real estate on Berlin s housing market? Source: BulwienGesa AG, 2011 For the polled investors, the hope for rising rents and the dynamic of change represent the most important reasons to commit themselves. In the past, the low rent level used to be the greatest impediment to investments. It is one of the reasons why 37 percent of the investors have not yet invested in Berlin. Most of the other companies, which previously invested in residential assets in Berlin, opted for direct acquisitions. Vehicles for indirectly acquiring residential real estate such as funds or stocks played a subordinate role. The majority of investors believe that they will continue to favour direct commitments on Berlin s residential real estate market in the future. That being said, indirect vehicles are gaining in importance.

2 Berlin Residential Investment Market Issue 5 / September Column colleges. The University of Applied Sciences, for one, The Lure of Berlin By Dr. Rainer Zitelmann Just a few years ago, house owners in many districts of Berlin had to bend over backwards to find new tenants. Not so today, as things have changed for the better. An acquaintance told me the other day with frustration that she had applied for a small studio apartment on Kurfürstendamm only to be told by the landlord she was one of 50 candidates for this flat. Berlin draws young people like a magnet. Elsewhere in the republic, the city has a reputation of being a dynamic, creative and affordable metropolis. That is why more people live in Berlin today than at any other time since Indeed, Berlin s population is 3,468,900 at the moment. During the first quarter of the year alone, 35,700 people moved to the city. This is more than twice as much as the inbound migration during the same period in 2010 which was 16,800. And in Q1 2009, the figure was just 11,000. This is a trend reversal since the mid-1990s when many people had left the capital. In Many young people are moving to Berlin, and need a place to stay. Yet housing construction remains minimal in the capital vacancy rates are going down, rents are going up. That said, housing remains far more affordable than in other German cities. reported that in some cases, demand surged by ten percent. Berlin S higher education institutions have responded to the surge in demand by expanding their capacities. By 2012, campuses are supposed to be able to admit another 6,000 students. Not just students are moving to Berlin, but young people, too, who are looking for career opportunities in the creative sector. According to stats released by the chamber of commerce, this sector, which accounts for around 27,000 small and medium-sized companies in the German capital, generates annual sales of just under 22 billion Euros that is, 16 percent of the total turnover of Berlin s economy. That many young people are moving to Berlin is one of the reasons why the number of households at least those relevant for the housing market is rising faster 1995, the local daily Berlin than the number of residents. Morgenpost reported recently. The BBU Association of Housing Entrepreneurs in Berlin and Brandenburg reported that the number of households rose by nearly 100,000 between 2005 and During the same period, only 3,100 new apartments were raised. Berlin s Senate predicts that the number of households will increase by 130,000 before the year Yet given the fact that housing construction in Berlin remains negligible, it is safe to expect the year 2000, the population of Berlin hit its lowest level vacancy rates to decline and rent rates to rise. at 3.38 million. Meanwhile, though, a new dynamic trend has taken root. The number of people moving to Berlin Notwithstanding the surge in rent rates, housing in Berlin has been steadily increasing, as has the birth rate in remains far more affordable than in other cities such as recent years. Hamburg, Munich or Frankfurt. Young people relocating Many young people come to Berlin to obtain a degree. to Berlin from one of these cities find a comparatively Student applications for the winter semester, read the relaxed and low-priced housing market, and appreciate Berliner Morgenpost, hit a new all-time high, just like last the fact that they have to spend much less on monthly year, according to the universities and university rents than they would have to in their hometowns.

3 Berlin Residential Investment Market Issue 5 / September Market A Vibrant Market and No Sign of Overheating By Jürgen Michael Schick, MRICS The apartment building market is swept clean; prices have skyrocketed, while yield rates are plunging. Newspaper reports about investors ongoing run on tangibles sometimes include dramatic descriptions of the apartment building market in Germany. Of course, there are cities where the anyway low number of transaction has been spurred into genuine price hikes by the rise in demand. Sales transactions in Berlin have traditionally exceeded those in Munich and Hamburg at a rate of roughly four to one. Neither Hamburg nor Munich, being Germany s second- and third-largest city, respectively, is only one quarter the size of Berlin, though. Rather, market observers and service providers report an acute property shortage in these two cities, whereas the market situation in Berlin presents an entirely different picture. To be sure, demand outpaces supply in many segments even in the German capital. Small-scale properties in good inner-city wards are naturally sought by a high number of investors and therefore hard to come by. Genuine core properties in prime locations are certainly rare. Yet with more than 1,600 transactions closed on the rental housing market, and a transaction volume of more than 3 billion Euros, the Berlin market is considerably more liquid and fungible than the apartment building markets in other cities. Price Hikes Mirroring Demand So the question that presents itself this summer of 2011 is: Does it make sense to acquire real property in Berlin, or are we looking at an inflated price level? I recently read a piece by a journalist suggesting that prices had gone up by 50 percent in the past two years. For everyone who owns real estate, this would be sensational news. It would mean that a house that until recently sold for 16 times the annual net rent will now cost you 24 times. This is more than even dyed-in-thewool optimists would dare hope for. Closer to the truth is that apartment buildings which used to be rated at 16 times the annual rents now change hands for multiples of 18. This would imply a 12.5 percent increase. Price hikes of this magnitude are on record everywhere. At this level, even properties for which you may not necessarily have found a sufficient number or leads as recently as two or three years ago are being traded now. Price increases on this scale aptly reflect the risen demand among buyers from inside and outside Berlin. Berliners Sellers Turned Buyers Any assessment of the Berlin market, by the way, should include mention of the fact that Berliners themselves have started shopping for local real estate again. During the 2004/2005 rental housing boom, local players tended to be on the buyer side. Meanwhile, those who live in the city and experience its development day in, day out, have started buying again in their own right. Market profiles occasionally include a comparison of past with present square-metre prices. The problem with this approach is that an increase in demand for properties in superior locations will automatically drive up square-metre prices as sum total, but it is not necessarily proof of a genuine price increase. The market has changed in the sense that investors who generally prefer medium and good locations have taken the place of opportunistic buyers who used to enter the market in search for package deals at bargain prices. Rise in Revenues Makes up for Price Hikes After years of stagnating rent rates, price increases by 12.5 percent like those described in the above example are balanced by growing rent revenues. To be sure, higher rents probably do not compensate for purchase price hikes everywhere. But if rents for new lease signings have risen by 7.3 percent across the city since 2009, as the IVD Berlin-Brandenburg reported, they are bound to deflect the price increases to some extent. It is in the nature of Berlin s market that the rental growth in the various administrative districts shows major

4 Berlin Residential Investment Market Issue 5 / September differences. Since 2009, rents in standard residential locations have risen by 12.0 percent in Mitte, by 13.7 percent in Neukölln, and by 14.3 percent in Lichtenberg. In Spandau, by contrast, the rent dynamics for the same period equalled 0.0 percent. Considerable Interest, but no Hype The average gross yield of a Berlin apartment building is approximately 6.7 percent, according to our own findings. Deducting one percentage point leaves a net yield of 5.7 percent. This does not even take rent hikes and projected appreciation into account. Given Berlin s risk/reward profile, which the obviously improved fundamentals have considerably enhanced, this is an interest rate highly lucrative to many investors. At the same time, these figures are hardly high enough to justify worries about a hype of a price bubble. A rising demand for housing and a very slowly growing supply ensure that vacancy rates are going down and returns remain high. As a result, Berlin will continue to top the shopping list of investors in the coming years and months. Portrait of a District: Westend A Combined Venue and Sanctuary The ward of Westend, while it may not ring a bell with most Europeans or indeed with many Germans, is home to sights known far beyond the city limits, such as the Olympic Stadium, the Waldbühne amphitheatre or the ICC convention centre. Home games of Bundesliga football club Hertha BSC, concerts featuring bands like the Rolling Stones or orchestras like the Berlin Philharmonic, and trade fairs such as the IFA consumer electronics fair all draw local residents and tourists by the thousands to this north-west ward of Berlin's Borough of Charlottenburg-Wilmersdorf. Local residents, however, appreciate Westend less as an event venue, but more for the fact that it represents a veritable oasis of calm within the hustle and bustle of big city life. Highly Attractive for Visitors The fairgrounds including the convention centre, the Olympic Stadium, and the Waldbühne amphitheatre, are just three of many sought event venues located in Berlin s Westend ward. Indeed, the ICC counts among Berlin s favourite conference venues and one of the biggest anywhere. Every year, the fairgrounds next door host international trade fairs such as Grüne Woche, the world s biggest fair for food, agriculture and horticulture, ITB, the world s leading travel fair, and IFA, one of the major fairs for consumer electronics and home appliances. Being heavily overbooked, though, both the fairgrounds and the convention centre have begun to burst at the seams. Current plans call for a complete redevelopment of the 30-year-old ICC complex by 2016 in order to expand the capacities for hosting large conventions. The ICC, with a length of 320 m long, a width of 80 m and a height of 40 m one of the world s largest convention centres, opened for business in (photo credit: Hans-Georg Weimar) Waldbühne is considered one of Europe s most beautiful amphitheatres, and is regularly used for various open air events. Harking back to the architecture of the ancient Greek Theatre of Epidaurus, the tiered seating is arranged on a slope whose gradient steepens with increasing distance from the stage. Having hosted events as varied as open-air cinema and boxing matches,

5 Berlin Residential Investment Market Issue 5 / September Waldbühne is best known as a venue for rock, pop and classical music concerts today. 1860s, the Westend Kommanditgesellschaft partnership purchased large tracts of land, subdivided them into lots and then re-sold them, developed or undeveloped. Ahornallee and Lindenallee in particular saw the development of the first posh residences in years following. It took quite some time before the actual development got under way. In the early years, Spandauer Bock, a tavern opened in 1840 by a Bavarian brewer at the present-day intersection of Reichsstrasse/ Spandauer Damm, served as a popular holiday destination with its wonderful view of landscape and city. Berlin Waldbühne amphitheatre seats 22,000. In its hey-day, more than 500,000 spectators per year flocked here to attend concerts, shows and other events. (photo credit: S. Reichmuth) The Olympic Stadium was built on occasion of the 1936 Summer Olympics, as were other sporting facilities around it. It underwent extensive redevelopment and was refitted with a wide-spanning roof in preparation of the 2006 football world cup. Today, up to 70,000 spectators regularly watch the home games of Hertha BSC. Just like the ICC, Waldbühne and the Olympic Stadium, the Funkturm radio tower is another well-known piece of Westend architecture. It was built from 1924 to 1926 on the site of Berlin s fairgrounds, and is a protected monument today. Rising to a height of 147 metres, it became not only an instant landmark of Berlin but also a symbol for German engineering. Originally planned purely as a radio transmitting tower, it now features a restaurant 52 metres above ground as well as an observation deck at a height of 125 metres. Unsurprisingly, it is a popular destination for sightseers. Eclectic Mansions in a Scenic Setting The idea of raising an estate of townhouses and mansions modelled after London s Westend ward marked the genesis for Berlin s eponymous district. In the Once the Spandauer Bock tavern opened for business Berliners discovered the scenic beauty of Westend. (Copyright: O. Wandl) With the completion of the circle line and the opening of the Westend station in 1877, the traffic situation improved considerably. By the end of the nineteenth century, the booming population caused all of the lots of the original subdivision to be developed. Further expansion of the public transportation system after the turn of the century led to the development of new neighbourhoods. The differences between the old and the new areas of Westend remain visible to this day. The streets in the original ward, for instance, form straight blocks, whereas the areas zoned later on are dominated by sinuous lines. The buildings, too, testify to the chronological differences. Unlike the old Westend with its mansions, the new neighbourhoods were built up predominantly with apartment buildings and terrace housing.

6 Berlin Residential Investment Market Issue 5 / September Neighbourhoods with a Special Ambience Since the vintage Westend is one of Berlin s oldest mansion districts, numerous conservation regulations have been enacted since 1985 that seek to protect the uniqueness of the ward s urban development design. The provisions are to ensure the preservation of mansions, belle époque houses and half-timbered buildings. Architecturally speaking, the buildings in Westend are special in any number of ways. The mansion at Lindenallee 35, for instance, resembles a baroque castle, while the house at Ahornallee 47 features colourful elements of classicist pastoralism. On the whole, there are more than 240 properties officially listed, including protected monuments, building complexes and architectural compounds. Damm, serves as high street shopping street. Twice a year, resident retailers and entrepreneurs organise a street party. Less lavish, yet nonetheless well appointed are the apartment buildings, terrace houses and single-family homes of Neu-Westend. Raised in the 1920s, the terrace housing along Westendallee was conceived strictly in the style of Neue Sachlichkeit. Houses done in the same style are also sound in the estates Eichkamp and Heerstrasse that were designed and raised by Max Taut for low-income workers and civil servants in the years immediately after World War I. These estates are predominantly built up as terrace houses and semidetached units. The many trees as well as the narrow estate streets and alleys lend these quarters a charm all their own. The historic mansions with their architectural peculiarities are remindful of the genesis of Westend and lend a special charm to the ward. (photo credit: S. Reichmuth) You will look in vain for stores and shopping centres in this mansion district, by the way. Instead, Reichsstrasse, extending from Theodor-Heuss-Platz to Spandauer High Asking Rents For local residents, the sub-district of Westend stands for generous apartments, a short commute downtown and high rent rates. The asking rent median in the historic Westend ranges in the top third citywide. Not quite as pricy, but simultaneously slightly remoter, is the Eichkamp estate. Yet you will look in vain for truly affordable apartment anywhere in the ward: Even the asking rent median for the bottom ten percent of the market exceeds five Euros per square metre everywhere. In the western end of Westend, which commands the highest rents, rates actually go past the mark of 15 Euros per square metre. Since the purchasing power is rather modest due to the high share of retirees, pensioners and single-person households, it comes as no surprise that the housing cost ratio, ranging from 25 to more than 30 percent, clearly exceeds the Berlin average of 24.4 percent.

7 Berlin Residential Investment Market Issue 5 / September Apartment Buildings of the Month Rental Housing Complex in the Heart of Berlin-Neukölln The apartment building offered for sale is located near Karl-Marx-Strasse in a quiet side street of Berlin s borough of Neukölln. Raised in 1965, the building consists of 68 residential units and a total floor space of 4,080 square metres. There are no business units in the building. The building substance can be rated as sound. The house is heated by central heating. All apartments come with a balcony each. Purchase price: 4,000,000 plus 7.14% sales commission, yield rate: 6.6% Impressive Apartment Building in Berlin s-prenzlauer Berg This fully refurbished residential and business building is situated in a popular location in the heart of Berlin s Prenzlauer Berg district. Refurbished late-nineteenth-century buildings, plenty of greenery, and a rich entertainment and gastronomy scene define the neighbourhood. Berlin s historic town centre lies within easy walking distance. The local infrastructure and the public transportation connectivity are superb. Raised around 1910, the house features a front, side and back building. The apartments in the side building come with balconies. The property was comprehensively redeveloped and modernised in the 1990s. The size of the apartments ranges from 29 to 134 square metres, and most of them are fitted with balconies. The attic was converted into attractive residential units. Purchase price: 6,500,000 plus 7.14% sales commission, yield rate: 5.0% Elegant Historic Building with High Income Potential in Berlin-Steglitz The quoted property is located in an excellent residential and business location in Berlin s Steglitz district. The estate was developed by a well-known architect. This residential and commercial building consists of a front building as well as left- and right-hand side buildings. The property is in good repair, with investments and maintenance jobs undertaken on a regular basis. The apartments include features typical for historic buildings, such as stucco and parquetry / board flooring. The attic is yet undeveloped. The fact that parts of the house still show a low rent average suggests additional development and income potential. Purchase price: 5,400,000 plus 7.14% sales commission, yield rate: 5.5% 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, Hans-Georg Weimar, S. Reichmuth, O. Wandl