Berlin’s Market Is Shifting

“Rents in Berlin Are Soaring” read a recent headline of an articles in the BERLINER ZEITUNG which reported that the average net rent will for the first time exceed the threshold of five Euros per square metre in the 2011 Rent Table, to be published in early summer of this year. The paper cited the first findings that went into the new rent table, for which the Hamburg-based F+B Research and Consulting Institute for Housing, Real Estate and Environment conducted a representative survey among 8000 apartments in Berlin.
Here is an initial outcome of the survey: Rent rates climbed twice as fast as the rate reported in the previous rent table. That being said, the figures only tentatively outline the dynamic of Berlin’s housing market. The rent rates of existing leases are much slower to rise than those of new leases. If, however, the rents of new leases rise, the reference rents increase along with them, which in turn will permit greater rent hikes for existing leases.
In some of Berlin’s boroughs, such as in Charlottenburg-Wilmersdorf, rents actually rose even faster. As the borough is growing at a rate of about 1000 residents per year, or so a survey by BulwienGesa revealed, it is a reasonable prospect to expect a dramatic housing shortage. The mean rent level in Charlottenburg-Wilmersdorf equals 8.50 Euros per square metre for first-time lease signings, thereby far exceeding the Berlin average. Rents for new apartments average 9.40 Euros per square metre in Wilmersdorf and 8.60 Euros per square metre in Charlottenburg. In exclusive locations of the borough, rents of up to 16 Euros are being realised even today.
Berlin is gradually “normalising,” as it seems. While even at five Euros the mean rent ranges far below Germany’s national average (5.89 Euros per square metre) Berlin is indeed catching up. This comes as no surprise: After all, residential construction in the German capital has virtually ceased since tax breaks for housing construction were repealed. At the same time, the population continues to grow. For one thing, the number of life births has started to slightly outpace the number of deaths again, resulting in a modestly positive birth rate. At the same time, more people are moving to the capital than away from it – the surplus in incoming migration adding up to 7700 people last year. If you bear in mind that there is also normal housing obsolescence to consider, and that the total number of households is rising due to the ongoing trend toward single-person households, then it is only plausible that vacancy rates will drop and rent rates rise.
All of this coincides with the rekindled interest on the part of investors. High-net-worth private investors are focusing on real estate in Berlin. According to the latest Apartment Building Market Report, more apartment buildings are changing hands in Berlin than in any other housing market in Germany. All things considered, or so the report suggests, approximately 8.5 billion Euros worth of apartment buildings were sold in Germany in 2009, thereof two billion in Berlin alone. This is more than the combined transaction volumes of Hamburg and Munich, Germany’s second and third-largest apartment building markets after Berlin. The rising demand as well as the rent hikes yet expected have also begun to drive sales prices up further. Arguably, everything Jürgen Michael Schick and I foretold in this very newsletter has long come to pass.