Lack of office space in Berlin is pushing rents up
Real-estate investors who are aware of the low yields, see nonetheless the potential for sharp increases in value
Every company that has recently searched for office space in the German capital is aware of the dismal state of supply in the market today. Supply has shrunk drastically over the past two years. Today’s situation is radically different from that of five years ago, when plenty of attractive offers in prime locations in Berlin could be found, which attracted a large number of established companies and young start-ups.
The lack of office space in Berlin means that investors from all over the world are interested in this market in the city. In the first half of this year, foreign real estate investment in Berlin rose by 160% inspired by Berlin’s long-term growth potential. In general, Berlin experienced a rise in foreign capital invested in it in the first half of 2019, with 70% of the total of $ 5 billion coming from outside of Germany. A real estate expert from a local real estate company JLL says it is a sign of global capital looking toward Berlin while believing in its future growth in the coming years.
The percentage of vacant office real estate in the city currently stands at only 1%, and while there is currently 900,000 square meters of new office space to be built by the end of 2020, half of this space has already been rented out. Rents have risen from € 22 to € 35 per square meter from 2013, and experts expect another 10% increase in the coming years.
Since the beginning of this year a private equity group invested € 116 million in an office project in Kreuzberg, Berlin; Google bought an office in the city center for self-use, and several large and influential companies chose to invest in office real estate in the city. All of them are attracted to the sector and believe in its future development, despite the plummeting yields. However, due to the diminishing supply, investors are forced to look for new properties in more remote locations, less central than Mitte or Kreuzberg: reality pushes them to areas such as Spandau and Adlersdorf. But investors focus on the long-term perspective and realize that with population growth in Berlin, these areas will soon become just as desirable.