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Real estate in Berlin – Metropolitan area of Berlin

Berlin‘s suburbs in development, rental growth

Many choose to live outside of Berlin and commute every day for work, causing increase in rents

About a million people live in the metropolitan area of Berlin. The level of prices and rents in these areas is determined by their geographical location, size and overall attractiveness. In the metropolitan area of ​​Berlin there are about 55 towns, 35 of which are more distant, 19 are closer to the capital and Potsdam is the largest city outside of Berlin. For comparison, in the last three quarters of 2018, the median rent in Potsdam was € 9.86 per square meter, the number being just € 0.48 lower for a comparable property in Berlin.

In about twelve other picturesque places surrounding Berlin, the rent is € 9.00-9.99 per square meter. These are towns such as Birkenwerder, Stahnsdorf and Teltow with a green and quiet environment and a pleasant scenery. A short gap with median rent of € 8.00-8.50 per square meter can be found in Oranienburg and its peaceful surroundings.

Places with rent of € 7.00-7.99 per square meter are usually smaller towns with a population of slightly more than 20,000 people, which are farther away from Berlin. This category includes places like Ludwigsfelde, Hennigsdorf and Strausberg. While they are all well connected to Berlin by train, their commute from the city center will take between half an hour and an hour.

In terms of price increases, Berlin’s suburbs have been following trends in the big city: in the past five years rents have risen in double-digit numbers as well as real estate prices in these areas. This is especially true of private homes and duplexes: purchase prices for these properties have crossed the border of € 4,000 per square meter.

With the rise in demand for housing in Berlin, so does the towns surrounding Berlin. And the more difficult it is to find an apartment outside of Berlin’s center, the higher is the out-of-town migration. This causes rents increases, increases in value and growth in new construction in the area.

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Real estate in Germany – Rent differences in center and outskirts

Gaps in rents in central Berlin and the city’s margins

Berlin’s historic center is the most expensive, but other neighborhoods continue to come close in price

Officially Berlin is divided into 12 major neighborhoods, but the real estate reality is much more complex. We have collected data on the demand for rents in the 190 postal codes of Berlin according to which the current situation in the city can be better understood.

At first glance, the picture is clear: 9 of the ten most expensive rental areas are located in the historic center of Berlin, Mitte. However, much of the new construction in the city is being built in other neighborhoods (for example, just north of the main station – in the Wedding and Moabit neighborhoods), while there are many old buildings in Mitte where people with very low purchasing power live. New construction is one of the main drivers of rise in rents: in areas with new construction, until 2015 asking rent was under 10 euros per square meter, and by 2018 it rose to an unprecedented rate of 15 euros per square meter and above.

The only area in the top ten in terms of rental levels that is outside of Mitte is the neighborhood around Lugwigkirchplatz in Wilmersdorf (postcode 10719), south of the famous Ku’damm Avenue. Other neighborhoods with a high rent of € 13-14 per square meter are the popular Kreuzberg-Friedrichshain neighborhood, Prenzlauer Berg and the Grunewald villas area in the west of the city.

Not far behind are the Charlottenburg-Wilmersdorf, north of Neukölln and Schöneberg neighborhoods. 42 additional zip codes make up the largest share of the city areas in terms of rent, where it stands at € 9.00-9.99 per square meter. The unifying feature of all these areas is the relatively big distance from the city center. There are only six zip codes in the lowest category of asking rents today with a rental price below € 7 per square meter.

Purchasing power is not uniform in all areas considered relatively expensive in terms of rent. For example, you will find households with high purchasing power in Mitte, Charlottenburg-Wilmersdorf and in Prenzlauer Berg – meaning people living in these areas can afford to pay the high rent and still have a good balance for extra expenses. Households with lower purchasing power but high rents are mainly located in the Kreuzberg-Friedrichshain and Neukölln neighbourhood.

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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.

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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.

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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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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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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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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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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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