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Real estate in Berlin – Trends in construction

New construction of residential real estate in Berlin: trends of 2019
An increase in new construction projects in all parts of Berlin

As of this moment, there are 286 projects already in various stages of construction or in advanced planning stages of new construction in all 12 districts of Berlin. Almost 43.000 apartments are expected to be built in these projects.

Despite the issues such as the difficulty in obtaining a building permit and a significant increase in construction costs, construction in Berlin does not stop for a moment. Recently, a clear trend of expansion of new construction projects in the city has been seen geographically: a lot of new projects are also being built in the areas outside of the Berlin Ring.

As demand for housing in Berlin rises and prices in central regions increase accordingly, more and more people choose to leave to the more remote parts of the city. For example, the Lichtenberg district is in second place in terms of the number of residential units expected to be built (6,000).

This is not to say that the Berliners are neglecting the center: about 9,000 real estate units are expected to be built in Mitte where more than half of them are built especially for rental. The TempelhofSchöneberg district, which is partly in the city center, is also developing rapidly. The emphasis here is on small to medium sized projects with less than 100 apartments each, and the main building is focused at the sub-district of Friedenau.

The pace of new construction in Friedrichshain – Kreuzberg is not particularly impressive, but at the same time, housing prices continue to climb upwards, with some prices only starting at € 5,000 per square meter.

In the northern part of the district of Neukölln, too, a lot of construction is planned: about 2400 apartments in 14 projects in the district are under construction or advanced planning – a significant increase compared to previous years. However, most of the construction will take place in the north of Neukölln with few projects south of the Stadtautobahn road.

Posted by Tanya Yujelevski  |  0 Comment  |  in Berlin, Development and growth, Uncategorized @en
Real estate in Germany

Real estate in Germany – Trends in real estate prices Berlin

The various trends in real estate prices in Berlin 2019
Real estate prices in Berlin have been rising steadily and fast, but not uniformly

Housing in Berlin is still considered cheaper than this of the bighest cities in Germany such as Düsseldorf, Munich and Hamburg – but prices are rising at a dizzying pace. Even though the level of unemployment in the city is relatively high, the positive migration and the lack of new construction are forcing Berliners to spend more and more on the living within the city.
Significant increases were recorded last year in the city’s most expensive segment (a 7.1% increase to rent of € 17.13 per square meter), as well as in the cheapest segment (up 4.7% to € 6.46 per sq.m.).

As expected, the geographical location of the property in the city still plays an important role and greatly affects the asked rents. The three inner districts of Berlin, Friedrichshain-Kreuzberg, Mitte and Charlottenburg-Wilmersdorf (in this order) are at the top.

In terms of the percentage of year-on-year rent increases, Friedrichshain-Kreuzberg is at the top, while in terms of price per square meter, Mitte bypassed the other districts with prices that pass the 20 euros per square meter.

In terms of real estate purchase prices in Berlin, similar trends were recorded: in the Mitte district, the median price first passed the price of € 5,000 per square meter. Not far behind, prices in the Charlottenburg-Wilmersdorf district now stand at 4,873 euros per square meter, and even in the cheapest housing the city is now difficult to find housing cheaper than 2,000 euros per square meter.

Only in neighborhoods farther from the city center, one can still (rarely) find real estate with price that does not exceed the 2,000 eur/m2 limit. Prices in the Neukölln district, which is partly located within the city center, rose relatively slowly with an average increase of 2.6%.

Only in the most distant districts of the center of Berlin – Marzahn-Hellersdorf and Spandau, located in the most eastern and western parts of Berlin respectively – there was a drop in prices, albeit quite small (-0.8% in 2019 compared to 2018).

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Real estate in Germany

Real estate in Germany – Grundsteuer

Changes in German real estate tax laws?

The German government is considering a new land tax law

According to the new law, the land taxes (Grundsteuer) that is being paid in Germany every quarter will be calculated based on a combination of the following parameters: artificial rental income, value of the land based on data from the municipality, and the age of the building. The proposal of this method caused mixed reactions throughout Germany.

It is a problematic issue, partly due to the fact that municipalities benefit from income from land taxes, but it is the government at the federal level that determines the binding laws.

Both the owners and the tenants pay land tax on real estate in Germany, and both groups will be affected by it: the owners pay directly to the municipality, while the tenants pay the amount as part of the additional payments to the basic rent, the Nebenkosten.

On the one hand, the proposed method of calculation of Grundsteuer is logical because all the data are related and dependent on each other. On the other hand, there are a number of problems with it.

First, the value of land in East Germany is based on data from 1935, and on data from 1964 in the West. In addition, the importance of several areas in Germany has changed in terms of real estate, such as the Bavarian region.

Secondly, the new process will involve a huge and full-time labor force. The mayor of Düsseldorf in Nord Rhine Westphalia objects to the move and says the land tax should be based on the value of the land alone, and the proposed method is a plot to create jobs for employees in the tax system. It is estimated that at least 2,500 new full-time employees will be required to renew the tax value, and from the moment the law is passed, it might take longer than two years until new prices are implemented.

Many in real estate in Germany is almost certain that the law will pass by the summer, even though the arguments on the issue will not cease to exist. But if the law does not pass, there is a danger that the land tax will stop to exist, which will seriously damage the municipalities in Germany. The move will require a lot of effort and time, but it is likely that it will lay the foundation on which the land tax in Germany will now be calculated.

Posted by Tanya Yujelevski  |  0 Comment  |  in Berlin, general
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shopping centres

Shopping centers as a solution to the shortage of office space

As malls are emptying of customers and retailers are abandoning stores, the space that is quickly being perceived by the spaces of co-marketing and start-up offices

The shopping center Forum Steglitz is one of Berlin’s most famous malls, located in the southwest of the city. It has been a center of attraction for many customers for decades – the forum was built in the 1970s on Schlossstr., a main street with three shopping centers and countless other retailers alongside it. A decade ago Forum Steglitz was purchased by Europa Capital, and after upgrading its occupancy from 80% to 99%, it was sold to Real I.S. in 2013. The acquiring company expected high, safe and long-term yields due to the constant flow of customers to the stores and the dining area offered by the mall, but the reality did not match the optimistic plan.

Whether it’s due to preference for online shopping or the passivity of retailers trying to fit into the digital age, the shops are slowly being abandoned. As successful as they may be, food courts cannot save the situation on their own. Within a few short years the world has become completely different for retailers, and the days when they could sign a ten-year lease with full confidence have already passed.

It seems that the directors of Forum Steglitz were also exposed to the sad reality, which led them to declare recently that the concept of the place will change. For example, the Lidl department store will be replaced by its more prestigious competitor, Edeka, and from 2020 on the second and third floors of the complex will be occupied by offices and co-working spaces.
Similarly, a huge shopping center that opened in Frankfurt a decade ago has never been able to rent out its entire territory and is now looking for tenants from a different field – the flexible office space that is replacing the retailers.

The trend is clear – a sharp shortage of office real estate in Germany, and Berlin in particular, pushing companies into an area that was not natural for them until now, and gaining momentum. The combination of office space and retailers can prove to be a successful symbiosis and thus solve both problems at once.

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real estate in germany

Investments in Berlin – Salary to rent ratio

Where in Germany will the rents be low compared to the average salary?

The housing portal and the job portal StepStone jointly conducted a study to find out what is the ratio of salaries to rents in German cities

In the more popular cities in Germany, a significant portion of the salaries of those living there go to rental payments. In smaller cities, on the other hand, there are differences that enable professionals to choose the optimal ratio between the amount of the salary and the monthly rent. Professionals in Munich will earn an average of € 66,800 gross per year. An apartment of 80-100 square meters will cost them around € 1,500 per month (net rent). Thus, the rent will constitute about 27% of the salary.

The ratio of the two figures is also very similar in Frankfurt. The average salary in the city thanks to the many banks is the highest in Germany and stands at € 67,700. Relative to this wage, residents of Frankfurt can afford to spend only 21% of their total income on rent.

Many want to live in big, popular cities like Berlin, Hamburg and Munich, but not many can afford it. Employers in medium-sized cities can attract professionals with a very high level of training because of the relatively attractive rents.

In this respect, Dortmund is among the best places in Germany. Its half-million residents are forced to part with only 12% of their salary on rent, which is worth about € 580 a month. The city of Essen is also close to this figure with a rent of about € 590 per month, which is equivalent to 13% of the average salary in the city. In other regions, too, there are cities with an attractive rent-salary ratio: in Dresden and Stuttgart salaries are relatively low, but their rents generally do not exceed 19%.

The study is based on 15,100 apartments in the 14 largest cities of Germany. The reference is to gross salary and net rent.

Based on REFIRE Volume 10, Issue 170, July 30th, 2018 p. 12

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real estate in germany

Co-working spaces

An increase in take-up of co-working spaces throughout Germany

The trend of “flexible office spaces” is gaining momentum and is reflected in the seven major cities of Germany

Interestingly, co-working is a fairly new trend in Germany, which was virtually nonexistent in 2016. Today, we see about 360,000 square meters of such offices in Germany’s major office real estate markets. According to experts, in the first three quarters of 2018 the number of flexible offices was 170,000 square meters in the seven major cities of Germany (Berlin, Hamburg, Munich, Düsseldorf, Cologne, Frankfurt and Stuttgart), representing 6% of office areas in that period. Occupancy in Berlin stood at 20,000 square meters, 50,000 square meters in Munich and 43,000 square meters in Frankfurt.

The real difficulty is finding suitable space for renters within the “big 7” boundaries, especially for those looking for an office space of 4,000-10,000 sq.m. When it comes to Berlin, experts believe that if there was more space available occupancy would rise accordingly, since the main problem is availability rather than demand.

The amount of flexible office space has risen by 25% in the last year, which is equivalent to an additional 500,000 sq. m of office space, of which about 75,000 sq. m have been leased in Berlin over the past year, in contrast with 14,000 the year before.

In addition, WeWork is expected to expand its offices in Berlin. Start-ups need spaces of this kind because they cannot predict exactly where they will be in five years. However, demand among established companies remains high as well.

As of now, 1% of the office space in the real estate market of the seven largest cities in Germany is made up of co-working offices, compared with 2% -4% in London, Singapore, San Francisco and Amsterdam’s markets, but more companies are expected to move larger parts their offices for co-working spaces, and even if this number gets to 5%, there will be severe commercialization of vacant spaces of this kind.

“Part of the problem”, experts say, “is the unwillingness of property owners to rent their properties for this specific use, and instead they prefer working directly with companies.”

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real estate in german

Investment in kindergartens

An increase in investments in kindergartens in Germany
Investments in kindergartens are gaining momentum as investors try to diversify

Although this market is still considered very “niche”, more and more investors are deciding to invest in kindergartens throughout Germany. According to a senior executive at JLL, this is a natural continuation after investing in real estate such as senior housing and student residences – a trend where investors choose smaller real estate niches.

According to him, municipalities will probably want to sell more kindergartens as long as there is no change in the use of the property.
One of the investors setting his eyes on the kindergarten market is the company Omega Immobilien based in the city of Cologne, Nord Rhine-Westphalia. The Rhineland, which includes the middle and lower Rhine regions, is one of the most densely populated areas in Germany with about 10 million inhabitants. Omega Immobilien focuses on ongoing projects with professional kindergartens as well as existing day care centers. The lease is for a long term of 20 to 30 years and is protected by government agencies.

Already there is a shortage of more than 70,000 day-care centers or kindergartens in Nord Rhine-Westphalia due to rising birth rates and rising demand for places. Municipalities are expected to seek more kindergartens as a result of the legal right to such a place, which makes the project interesting, according to Omega Immobilien.

However, kindergartens are usually sold for between 1 million and 3 million euros, which means they are below the threshold of € 5 million for many institutional investors. “For this reason, retirement homes can be more attractive as an investment because they are larger, and the kindergartens offer equally safe income because local authorities pay part of the rent and have long-term leases.”

Taken from REFIRE – Volume 11, Issue 175, December 20th, 2018

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real estate in germany

Increase in office rents

Experts predict that office rents on the outskirts of Berlin will jump by over 50% in the next five years

Dizzying pace of price increase and lack of availability in the city center force companies to move to the city outskirts

Due to the fact that rents in the center of Berlin are rising at such a rapid pace, coupled with the fact that there is almost no supply for vacant office spaces in the city, it is very difficult to find a space of 6,000-7,000 square meters in the center of Berlin.

It is estimated that over the next few years a shortage of 1.5 million square meters of office real estate will be created in Berlin, and then companies will have to compromise on less central locations, such as Teltow, which has an estimate of 6,000 sq.m of free offices.

In addition to that, the renting prices there are half the amount required in the city center. Rents now stand at 9-10 euros per square meter in an old building, or € 14-16 per meter in new construction.

For the sake of comparison, in the center of Berlin companies will have to pay at least € 28 per square meter, and even in Potsdam, which is a fairly small sub-market, the price will not be less than € 20 per square meter.

Not only are the rent for office space in central Berlin extremely high, they are also constantly rising. In prime locations in the city, such as the Charlottenburg-Wilmersdorf district, rent rose to 32 euros per square meter in the third quarter of 2018, compared to only 21 euros in 2013.

The rise in rents in Berlin is also the highest among other major cities in Germany. While the rise in prices from second to third quarter in 2018 was relatively high and stood at + 1.9% in Hamburg and Düsseldorf, and + 1.3% in Munich and Frankfurt, Berlin led with an impressive increase of + 3.2%.

Another factor that makes Berlin’s outskirts a more desirable place is a relatively low business tax. In Germany this tax consists of a federal tax base and a tax that is imposed by the municipality independently. Thus, in Munich or the center of Berlin this tax will amount to about 30%, while in remote areas such as Teltow, half of the amount can be paid.

The only problem is finding funding: many German lenders will refuse to finance the development of offices outside the city center, even despite price increases.

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Investments in Berlin – Price increase in Berlin

The high demand and rising building costs are causing additional increases in the prices of residential real estate in Berlin

Decline of prices for residential real estate in Berlin does not seem a likely scenario in the near future

The total amount of residential real estate transactions in Berlin doubled between 2008 and 2017 to 4.84 billion euros. Interestingly, what emerges from a recent study is that the number of real estate transactions has shrunk by one-third over the last four years, pointing out the level of price increases and how they contribute to the current market situation.

One of the real estate experts in Germany says that the main reason for such dramatic increases is an increase in construction costs, which caused a 10 percent rise in residential property prices only in the last year.

The demand for housing in Berlin has not risen significantly lately, but even as it has been constant over the last few years, the possibility of solving the problem through a matching supply is only getting farther away from reality. According to official statistics, the cost of building an average apartment rose by 4.6% between August 2017 and August 2018.

This costliness can be explained by the increase in the prices of raw materials – cement, plaster, insulation materials, etc. – prices rose in all cases by no less than 3.7% per year.

In addition, in recent years, many regulations have been introduced in the area of construction and safety: their amount has increased four-fold since 1990. All these factors, in addition to the high demand for housing, cause inevitable price increases.

Berlin’s Senate estimates that by 2030 there will be a shortage of about 194,000 housing units in the city, whereas the CDU, which is not a part of the local Berlin government, is now afraid that in reality the deficit will be closer to a quarter million units.

The party is also demanding that the local government approve more construction on agricultural land, distribute more permits for the construction of taller buildings, and put back on the table the construction at the former Tempelhof airport after Berliners voted against building in the area in the 2014 referendum.

Combination of all the above mentioned factors leads most experts and investors to believe that prices for residential real estate in Berlin are not expected to fall, or, for that matter, even to balance in the foreseeable future.

Posted by Tanya Yujelevski  |  0 Comment  |  in Berlin, Development and growth
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Berlin municipality plans to invest 28 billion euros in improving public transport

The Berlin senate has decided to invest an additional budget of 28 billion euros in public transport over the course of the next 15 years

At the end of February 2019, a debate was held in the Berlin senate on the state of public transport in the city, at the end of which a plan was adopted for the next four years, and a decision to invest a budget of just under € 2 billion per year for the next 15 years.

The ruling coalition of the state guarantees transportation that is “cleaner, more attractive, more convenient and more reliable.”

For public transportation users in Berlin these are not solely good news due to the fact that travel costs are expected to rise. The Berlin Transport Company (BVG) expects to raise its revenues by 3 billion euros by 2035, which means that prices of all types of tickets will probably climb up.

The BVG said at this stage that they expect their revenues to increase an average of 3.4% per year. This figure is based on an estimate of a 1.8% increase in ticket prices and an additional 1.4% due to an increase in the number of users.

The changes that are expected to occur include innovations and improvements in the existing subway, tram and bus systems, as well as the addition of new services and lines.

Berlin’s subway is expected to expand significantly. The U5 line will be extended by 2020. In addition, BVG are soon expected announce the extension of the U7 line in the direction of West Berlin, the extension of the U8 line and two additional extensions to facilitate access to the city’s airports: to the new airport from Rudow on U7, and to Tegel from U6.

Berlin’s tram will be the center of reform, because the costs of adding electric railways are significantly lower than the construction of subway lines. Altogether, 16 new construction projects are planned on tram tracks.

Finally, the plan includes, inter alia, a promise to reduce the use of buses running on fossil fuels for the addition of buses running on electricity.

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