Image for post
Image for post
The changing dynamics of the Berlin capital — Black Label Properties — photo: Dominique Bridstrup

THE BERLIN MARKET AND FUTURE PRICE DEVELOPMENT

Achim Amann
Jun 19, 2019 · 6 min read

Comment by Black Label’s investment analyst Evgeny Vetokhin

Historically, Berlin is lagging behind the six largest cities in Germany with higher unemployment, lower economic output and thus lower purchasing power index. The effects were slower economic results and therefore a lower purchasing power index. Over the past few years, this momentum has changed somewhat and the gap has narrowed as unemployment has been consistently below 10 per cent for many years and Berlin has developed into a service-based economy (85 per cent of output comes from services). While economic growth in Germany is slowing down overall, Berlin has far exceeded the national average, reaching 3.1 per cent in 2017.

Prices and rents

Image for post
Image for post
Evgeny Vetokhin

The vacancy rate in Berlin today is only 1.1 per cent

As in previous years, the largest number of condominium offerings was concentrated in the city centre or in nearby districts. Over 50 per cent of the ads were recorded for the four central districts of Charlottenburg-Wilmersdorf, Mitte, Pankow (including Prenzlauer Berg) and Friedrichshain-Kreuzberg.

Image for post
Image for post
Berlin property market trends

Construction dynamics

The share of rental apartments in the volume of new construction continues to increase. Many districts are seeing a significant increase in the new construction pipeline. Marketing is currently focused on the rental property segment, with 60 per cent of the new units earmarked for letting. This share could even increase if, as one would expect, some of the new condos are let by their buyers as investment real estate.

Will the current price cycle end soon?

The typical duration of a real estate price cycle is only five years. The 10-year cycle is, therefore, a conspicuous case. Especially in terms of financial stability and a potentially negative impact on the economy. The risk of a sharp setback increases with each increase. The following conditions would show that the uptrend cycle is nearing its end:

  1. The labour migration to Germany stops. According to current information from the Federal Statistical Office, net migration to Germany in 2017 amounted to 416,080 persons. In its monthly report in June 2018, the Bundesbank expects net migration to reach 1.2 million in the period from 2018 to 2020, making the decline in labour migration unlikely.
  2. Interest rates are rising sharply and thus rental yields in the German residential real estate business are also becoming less attractive.
  3. The population clearly prefers to rent a property instead of buying it. Rental rents in 2017 rose year on year to a 23-year high of 6.9 per cent. Although leasing momentum has slowed substantially in 2018 and thereafter and further policy measures are expected for rental control laws, bottlenecks in the housing market point to a continuation of the upward trend. According to DB research, the four above-mentioned conditions are unlikely to occur in 2019. Therefore, the price cycle is expected to stay in place.

As in the last 10 years, prices are likely to rise faster than rents

While this trend puts further downward pressure on initial yields, real estate market wealth is likely to be more attractive than investments for both private and institutional investors. This constellation argues against a short-term end to the cycle, as yields on the real estate market are likely to significantly outperform interest rates on long-term German government bonds in the coming years.

Achim Amann

Written by

Co-founder, Black Label Properties. A German property expert helping people to find the right investment in Berlin. Coach and advisor to clients and developers.

Achim Amann

Written by

Co-founder, Black Label Properties. A German property expert helping people to find the right investment in Berlin. Coach and advisor to clients and developers.

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch

Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore

Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store