Berlin Residential Investment Market News Update on Berlin s Rental Housing Market January 2013 Berlin News Surging Demand Boosts Investment Climate The housing supply in Berlin continues to dwindle: Despite surging construction activities, demand both for rental housing and condominiums has outpaced supply for years. According to the latest Housing Market Barometer published by IBB Investment Bank Berlin the call for apartments extends across all size categories. With a view to recent demographic forecasts, experts assume that the imminent demand boom will affect all market segments and rarely be matched by adequate supply. Housing Shortage across Price Segments While the supply shortage in 2011 was limited to the lower price segment, experts predict that it will have extended to rentcontrolled apartments in 2012. Indeed, they even expect the rental housing supply in the mid-price segment to dry up in a comparable manner by 2015. Which leaves the upper price segment the only one with a more or less balanced demand/supply ratio. Upbeat Sentiment among Investors The supply contraction and increase in rents and prices in the German capital coincides with an upward trend of the investment climate. While rated by most experts as bad or average at best as recently as 2011, assessments now range from average to excellent. And they include all segments of the residential real estate Investor are becoming more optimistic market. According to the IBB, Investment climate development since 2010: institutional buyers of existing housing stock stand to benefit most from the situation. Looking forward, the index poll respondents assume that, while the cycle of this market segment may have peaked as prices are rising and supply is drying up, the market conditions remain sound. As a result, rental housing construction in Berlin has become a paying proposition again. The investment climate in this sector is expected to Source: IBB Wohnungsmarktbarometer 2012 remain bright in the coming years, the same being true for the construction of condominiums. Private buyers of existing housing also benefit from market conditions that are already sound and may improve further, or so the experts believe. What explains the buoyant spirit in this market sector are the persistent financial crisis and the comparatively low purchase prices and costs of borrowing.
Berlin Residential Investment Market Issue 1 / January 2013 2 Interview of rapid transit stations are rather suitable for Further Price Hikes Expected Transactions figures on Berlin s rental housing market have increased steadily since 2009. In the years since, the growth in the total number of sales was actually outpaced by apartment building sales. This is not likely to change any time soon, says André Adami, head of the Berlin branch of Bulwien Gesa AG. How long will Prices, Revenues, and Transactions Figures Keep Pushing up? We expect to see modest rent increases in excess of the inflation level in the existing-housing segment in the comings years, too. This alone is likely to motivate further price hikes as long as the sales factors remain stable, which is assumed to be the case at least in 2013 and 2014. Revenues and transactions have already achieved a very high level. The lack of investment alternatives will make owners more reluctant to sell their apartment buildings than they used to be. While demand for portfolio deals is high, too, the supply side is rather glum at the moment. Is Berlin s rental housing market developing homogeneously, or are some of the city s boroughs being bypassed by the housing boom? Price increases are reported from everywhere in the city, though neighbourhoods developed during the Belle Époque in or near downtown locations are particularly sought. These are also the wards that are seeing the steepest rent and price hikes. Which districts have the greatest growth potential? In the years ahead, the historically grown locations outside the rapid transit circle line will benefit from migration movements from the town centre. Here, areas with buildings of attractive fabric in the vicinity Berlin s fortes are its sheer size and the liquidity of the market. apartment buildings investments and small-scale project developments in the medium-price segment. What forces are driving the rental housing market? Berlin s fortes are its sheer size and the liquidity of the market. This gives buyers a very real chance to find portfolios of any size category and risk class. Moreover, the city s rental housing market is open to out-oftown investors. Prominent buyer groups focusing on portfolios last year included listed and municipal housing companies along with German real estate funds, especially institutional funds. High-net-worth individuals and family offices from Germany define the market for singleproperty transactions. The seller side, by contrast, is dominated by foreign players. Is it time to expect prices and rents on Berlin s housing market to start matching levels in Munich or Hamburg? Demand for housing will remain high, and cause construction volumes to increase. In the years ahead, about 10,000 apartments should be completed annually. While this would be three times as many as the long-term average, the number is still too low to meet demand. This makes it safe to expect rents and sales prices to keep going up unless subsidised housing development is massively expanded. That we will see a level comparable to those of Hamburg or Munich is nonetheless unlikely because of the high floor area potential and substantially lower income levels. The sustained positive development across housing segments and many districts of Berlin will continue, though.
Berlin Residential Investment Market Issue 1 / January 2013 3 Column Berlin = Munich + Hamburg + Frankfurt + Düsseldorf + Stuttgart by Dr. Rainer Zitelmann hotel and other types of use. In Hamburg, by contrast, the share of the rental housing market in the overall real estate market was a mere 21 percent, and just 25 percent in Munich. Berlin s performance is on a par with Munich plus Hamburg plus Frankfurt am Main plus Düsseldorf plus Stuttgart. To be precise: Berlin actually outperforms all of these cities combined. While obviously not true in terms of economic power, it is definitely the case in regard to apartment building sales. The Rental Housing Market Report 2012, which the Center for Real Estate Studies compiled on behalf of the IVD Federal Investment and Asset Management Association, suggests as much. Here are the stats: In 2011, rental housing sales in Berlin added up to 3.9 billion euros. The combined sales of all other cities mentioned, by contrast, barely cleared the mark of 3.7 billion euros. Even in the City of Munich, which takes second place after Berlin, rental housing sales generate barely one fourth of the turnover volume as in the nation s capital. Year on year, the sales volume in Berlin rose by 29 percent, thereby surpassing even the banner year of 2007 when sales topped 3.6 billion euros. The number of transactions in Berlin rose by 17 percent year on year, from 1611 to 1887. The following figure tells you just how important the rental housing market is for the city s real estate market as a whole: The share of rental housing sales in the total real estate sales equalled 57 percent in Berlin, the remaining share of sales breaking down into office, retail, While apartment buildings in Munich sell at a rate of one house every other day, five houses change hands on a daily basis in Berlin. In fact, the number of apartment buildings sold in Munich is negligible because the market is swept clean. The following comparison suggests as much: While apartment buildings in Munich sell at a rate of one house every other day, five houses change hands on a daily basis in Berlin. For real estate investors, these figures are important because they demonstrate that Berlin is by far the most liquid rental housing market in Germany. Which hardly comes as a surprise, because players from all walks of life buy and sell in Berlin: - Locals - Investors from elsewhere in Germany - Foreign HNWIs - Foreign institutional investors - Private buyers - German insurance companies, lately - Closed-end real estate funds Naturally, you will find attractive real estate investments in other cities, too, and they may even come with higher yield opportunities than in Berlin. This is particularly true for so-called Grade B cities, which can by all means be a viable alternative. But the liquidity of the market, and the diversity of buyers is nowhere higher than in Berlin. And real estate buyers will appreciate the fact when the time comes to resell their property, at the latest. All of the abovelisted groups will qualify as leads.
Berlin Residential Investment Market Issue 1 / January 2013 4 Market Trends Especially Berlin families with a migrant background Berlin City of Growth by Jürgen Michael Schick, MRICS Anyone owning or thinking about drive the demographic growth that the real estate industry loves to see. In short, Berlin s demographic growth is limited to marginal age groups whereas tax-paying residents will diminish in number. owning real estate in Berlin has reason to rejoice. Demand will For investors, this means that the mid- and lowerlevel keep going up. For Berlin is growing housing segments will continue to see very and rapidly so. The population high demand. In my eyes, this represents the most of Germany s capital will in- lucrative market in Berlin anyway because it is sub- crease by 254,000 residents between ject to the highest housing demand. Given the pro- now and 2030. This equals an increase by spects of an increase by 65,000 young people to a more than seven percent since 2011. It is, in any total of roughly 390,000 young Berliners aged 6 to case, the growth forecast on which Berlin's Senate 18 years, market players should not focus exclusively Administration bases its urban planning calculations. on single-person households, even if the ma- Aiming at around 3.8 jority will live in just such million residents, Berlin is growing faster than Hamburg or Cologne. The latter, for instance, is expecting next to no growth at all. As a result, the demand for Many market players are likely to shift their perspective when it comes to their choice of locations. households. Berlin s development also differs on the borough level. While all of the city s districts will grow, they are likely to do housing in Berlin will continue so at very different speeds. The to grow. Investors should not rely on this gen- biggest increase between now eral outlook alone, of course. For the age groups and 2030 is expected for Pankow at +16.3 percent. and the city s boroughs are growing at a different Charlottenburg-Wilmersdorf or Steglitz-Zehlendorf, pace. This implies interesting conclusions for real by contrast, will only grow by just over 6 percent, estate players. less than the citywide average. Many market players of long-standing tradition that used to concentrate Growth does not automatically lead to prosperity. exclusively on the city s western downtown and The number of gainfully employed persons in the south-west area are well advised to reorient themselves, age group between ages 18 and 65 will decrease by and to factor the growth forecasts into their around five thousand. The only group that will experience investment decisions. a slight increase is that of the older working- age population aged between 45 and 65 (+2.1 percent). From my perspective, all of the districts, regardless The number of elderly residents (ages 65 and of their divergent location profiles, may be deemed older) will increase by nearly a third. The age group safe in terms of demographic growth. The sociodemographic of those over 80 years of age will experience the structures are not about to be turned steepest increase at +81 percent. At the same time, on their head in the coming 17 years. That being the number of young people between the ages of 6 said, since growth in the boroughs of Pankow, Friedrichshain-Kreuzberg, and 18 will also increase noticeably by +20 percent. Mitte, Treptow-Köpenick, and Lichtenberg will outpace the demographic increase
Berlin Residential Investment Market Issue 1 / January 2013 5 in the western boroughs, the perspective of many players is bound to shift to some extent when choosing their locations. Berlin is undergoing a dynamic change. Anyone living and working in this town can feel and see it in their personal and business surroundings. But did you know that Berlin is home to one million people who did not use to live here as recently as 15 years ago? A clever mind once said about Berlin: Berlin is a city condemned always to become, never to be. At long last, even Berlin s political players have upwardly revised their demographic forecast. Portrait of a District: Tegel Dawning Renaissance A few years ago, Berlin still operated two airports inside the city limits. The close-down of Tempelhof Airport in 2008 led to a surge in demand for housing and improved quality of living in the eponymous district. The ongoing boom is inspired not least by a citizen-friendly urban planning concept for the resulting brownfield area. Rather than a foregone conclusion, the concept marked the end of a rocky decision-making road for Berlin s Senate that is not to repeat itself in the case of Tegel Airport. So a detailed master plan was completed well in advance of its imminent closure. Underlying the plan is the idea is to reconnect to the forces that fuelled Tegel s first urbanisation drive industry and research. From a Key Crossroads into a Bustling Suburb Even in its early days, Tegel benefited from its favourable location by the eponymous lake, Tegeler See, which meant convenient access to important trade routes along the Havel and Spree rivers. As such, Tegel played a key role in Germany s industrialisation. As early as 1836, the engineer and industrialist Franz Anton Jakob Egells took advantage of the low prices for zoned land by acquiring a waterfront plot to set up a hammer mill on Lake Tegel. In 1898, the Borsig-Werke factory, founded by Egells apprentice Johann Friedrich August Borsig, installed a new plant in the very same spot. Tegel is Tegel is part of the Borough of Reinickendorf today and borders the boroughs Spandau, Charlottenburg-Wilmersdorf and Mitte. (Source: TUBS) also home to Berlin s first high-rise, Borsig Tower, built in 1922. In a matter of decades, Tegel transformed from a village on the edge of the city into a sought industrial and residential location. Tegel s connectivity with other parts of Berlin continued to improve apace with its growing economic significance. To this day, the location benefits from its economic heyday that brought rapid transit, underground, and motorway access to the district. Over time, the historic cityscape of Alt-Tegel and Tegel s inland waterway port gave way to the rental housing that characterises the district today. The dis-
Berlin Residential Investment Market Issue 1 / January 2013 6 trict s Belle Époque buildings, so typical for Berlin, are largely preserved. Only eleven percent of the local housing stock was destroyed in World War II. On occasion of the International Building Exhibition in 1987, a new development area was zoned for 350 apartments in the port area, and a modern library, Humboldt Bibliothek, was built. Berlin s rent table for 2011 rates this location as excellent, showing the highest asking rents in Tegel. According to the 2012 housing market report by JLL, the one-year price increase exceeded 15 percent. At the same time, the residential location benefits from its proximity to Tegel s business area along Berliner Strasse. Entrance to the Borsig Compound: The favourable location attracted industrial companies to Tegel. (photo credit: Jens-Robert Schulz / pixelio.de) Vast Woodlands, Lots of Water, Fewer People Extending over nearly 34 square kilometres, Tegel is the largest district in the borough of Reinickendorf. Its population density of roughly 1,000 persons per square kilometre is far below the city average, and nowhere near the figures reported from downtown boroughs such as Mitte and Friedrichshain- Kreuzberg. Aside from the superior residential locations along the waterfront, Tegel is home to medium and fair neighbourhoods, too. The Berlin rent table for 2011, for instance, categorised the areas near the airport as predominantly fair residential locations. Mediumquality residential locations are found primarily along Bernauer Strasse and in north-eastern Tegel. Here, the built-up area is characterised mainly by detached and semi-detached rental housing raised during the interwar years. At 5 to 10 percent, the price growth in these locations slightly undercuts the district centre, according to the JLL report. Tegeler See is a great starting point for exploring the waterways of Berlin. (photo credit: Karl-Heinz Liebisch / pixelio.de) The favourable ratio is brought about specifically by the extensive green areas, woodlands, and lakes. The woods of Tegeler Forst in the north and west of the district as well as the wooded expanse of Jungfernheide toward the south surround the lakeshores of Tegeler See and Flughafensee. Flughafensee, a manmade lake just north of the airport runway and bordering a nature reserve, is a popular swimming hole for locals. The more urbane forms of lakeside recreation are offered around Tegeler Lake. Tegel s historic downtown is separated from the lake by Greenwich Promenade on the east shore, a popular esplanade since the days of industrialisation. There are several piers for pleasure boats offering river cruises on the waterways of northern Berlin. A survey by the City of Berlin on popular access to green areas concluded that Tegel boasts an extremely high share of green areas of more than 50 percent, and a low population density.
Price in euro Berlin Residential Investment Market Issue 1 / January 2013 7 Airport to Become Tomorrow s Research Hub Few places define the district s image as much as Tegel Airport, officially named Otto Lilienthal Airport. It is located on the southern edge of the district, with its motorway feeder already situated in the borough of Charlottenburg-Wilmersdorf. View of Terminals B, D and E and the signature control tower. The hexagonal Terminal A is earmarked as centre of the future ward in the master plan. (photo credit: Tim Pritlove) For a long time, the grounds of the present-day airport were used for military purposes. During the Berlin airlift, the capacities of Tempelhof Airport no longer sufficed to resupply the city, so that Tegel served as second cargo hub. Having been used as a French air base in the 1950s, it was opened up for civilian aviation in the 1960s. Completely rebuilt in the 1970s, Tegel became the busiest of Berlin s three airports, handling around 17 million passengers in 2011. Once Schönefeld Airport south of Berlin has been expanded into the city s new mega airport, Tegel is supposed to shut down. Paradoxically, the plans for the redevelopment of Tegel Airport are more detailed even now, well ahead of its closure, than the plans for the longclosed Tempelhof Airport. Presented on 6 September 2012, the master plan envisions research, industrial and commercial areas for the follow-up use of the grounds, which extend over 460 hectares. While principally possible, there are currently no plans for any housing construction. Michael Müller, Berlin s Senator for Urban Planning and Environment, considers this master plan a binding and flexible basis for the realisation of the research and industrial park. The plan identifies the Beuth University of Applied Sciences, which could open a second campus in the present terminal building, as partner of choice. Start-up companies and well-established industrials are supposed to relocate here to focus on urban technologies research. The idea is to keep using the existing buildings. Green areas, woodlands and meadows will account for 220 hectares, meaning nearly half of the entire estate. A bicycle trail going all the way to Tegeler See is to traverse the former airport grounds. For the time being, the imminent closure of the airport is not reflected in rent rates yet. Indeed, Tegel s rental growth of 4.3 percent lags behind the citywide average, according to the Immobilienscout real estate portal. Rent rates, too, continue to fall short of Berlin s rent average at 7.10 euros. Once the aircraft noise is taken out of the equation, it is safe to expect an upward trend. Prices and rents in neighbouring boroughs, especially in eastern Spandau and Wedding, have already started pushing up. Residential locations directly bordering the airport grounds are expected to see rental growth in the medium term. Apartment Prices in Tegel 3250 3000 2750 2500 2250 2000 1750 1500 1250 Q2 2010 Q4 2010 Q2 2011 Q4 2011 Q2 2012 For the first time, sales prices crossed the mark of 2,000/sqm for existing properties (red) and of 3,000/sqm for new properties (blue) in Q4 2012 (Source: Immobilienscout24)
Berlin Residential Investment Market Issue 1 / January 2013 8 Apartment Buildings of the Month Attractive Residential and Commercial Building in Berlin-Friedenau Friedenau counts among the city s most popular residential locations, and is largely built up today with four-storey buildings and historic apartment blocks in good repair. The excellent infrastructure is complemented by outstanding access to public transportation in the form of coach, rapid transit and metro stops in the immediate vicinity. Built during the Belle Époque, the property dates back to 1907. It breaks down into 12 apartments and one commercial unit. All utility lines were renewed in 1996. Heating is provided by a central gas-fired system, whereas hot water is prepared by tankless heaters inside the units. Except for two units, all apartments were refurbished, and feature fitted kitchens, parquet floors and tiled bathrooms. The apartment rents average 6.87/sqm, and have rent increase potential. The business units rent out for 12.94/sqm, which is on a level with headline rents. The property is fully let. Purchase price: 1,400,000 plus 7.14 % sales commission (incl. VAT), yield rate: 5.26 % Seven Condos in Superior Location in Berlin-Tegel This refurbished building is located in the district of Tegel, which is part of the Borough of Reinickendorf in Berlin s north. The surrounding area offers a rich variety of recreational options along with an excellent infrastructure. Access to public transportation is excellent. The seven condos on offer are sold as a package. They are located in a magnificent refurbished historic building in excellent repair. The apartment sizes range from just below 50 sqm to 113 sqm. Two of the offered apartments may be handed over in a vacant state if requested. The building has been to a large extent refurbished. All units, except one attic apartment, feature elements typical for historical buildings, such as board flooring and stucco-decorated ceilings. Purchase price: 795,000.00 plus 7.14 % sales commission (incl. VAT), yield rate: 4.27 % Presentable Historic Stucco Building in Charlottenburg-Wilmersdorf, Berlin The property offered for sale here is located in Berlin s borough of Charlottenburg-Wilmersdorf. The quarter counts among the most popular and distinguished residential areas in Berlin. Moreover, the local district is an important science and research location. As a result, access to public transportation is excellent. This highly presentable combination residential/ commercial building was incrementally but comprehensively modernised. Most recently, the façade and staircase were refurbished. The property consists of eleven commercial and five residential units. The commercial rents average approximately 7.95/sqm. Average apartment rents approximate 7.58/sqm, and have rent increase potential. All apartments come with hardwood flooring and modern fitted kitchens. A modern lift has been installed in the building. Purchase price: 8,500,000.00 plus 7.14 % sales commission (incl. VAT), yield rate: 4.1 % Credits Dr. ZitelmannPB. GmbH, Rankestrasse 17, D-10789 Berlin Authorised representative: Dr. Rainer Zitelmann / HRB: 76 460 Michael Schick Immobilien Investmentmakler, Rheinbabenallee 40, D-14199 Berlin Authorised representative: Jürgen Michael Schick Phone: 030 / 254 93 167, e-mail: info@berliner-zinshaeuser.de Photo credits Dr. ZitelmannPB. GmbH., Michael Schick Immobilien, TUBS, Jens-Robert Schulz (Pixelio), Karl-Heinz Liebisch (Pixelio), Tim Pritlove