The market for rental properties in Berlin is experiencing significant shifts.
At REFIRE we’re most familiar with the housing situation in Berlin, given that it’s where we’re based and where we have the most contact with people trying to find suitable – or even adequate accommodation – whether to rent OR to buy. And one thing we can say is this: the Berlin rental market is indeed tightening, with a stark decrease in available rental properties, which in turn is pushing up rents across the city.
In 2023, inflation and rising construction costs softened homeownership aspirations, nudging condo prices down slightly and apartment block prices more significantly.
Yet, as home buying became less accessible, the rental market saw heightened pressure, leading to significant rental price increases and pushing many to consider moving to the surrounding areas—despite rising prices there as well.
According to the just-released 2024 Residential Market Report by Berlin Hyp and CBRE, Berlin's average asking rent surged 18.3% to €13.60 per square meter, with high-end rents climbing 8.7% to €26.00 and lower-end rents increasing 4.9% to €6.25. This divergence in the market segments has resulted in nearly a €20 per square meter gap between them.
Michael Schlatterer of CBRE highlights a substantial reduction in the number of unfurnished rental flats, attributing this to landlords shifting toward furnished units or short-term rentals, often to service the debt of financing, thus increasing the rent. For the first time, offers for owner-occupied flats outnumbered those for rental units.
In the realm of property sales, asking prices for condominiums in Berlin experienced a slight average decrease of 1.4% to €5,750 per square meter, marking the first such decline in years. High-end market segments saw a 2.0% decrease, while lower segments noted a 5.4% decline. Despite this, high-end market prices remained above the €10,000 per square meter threshold for a second consecutive year. The asking prices for apartment buildings fell considerably by 11.7% to €3,179 per square meter in 2023.
Currently, Berlin has approximately 220 construction projects underway, contributing around 34,940 flats to the housing market, with a mere 15.1% within the S-Bahn ring. The state-owned housing associations are chiefly managing large-volume rental flat construction projects in the outer districts.
Housing shortages are driving residents to suburbs and spiking demand amidst stagnant construction, triggering widespread concern. Sascha Klaus, the CEO of lender Berlin Hyp, is pressing for increased construction activity and welcomes initiatives like the Berlin Senate's 'Faster Construction Act.' He calls for a standardization of building regulations and sensible energy requirements that consider social aspects.
The institutional residential property transaction market saw a significant decline in portfolio transaction volume, down to around €1.8 billion in 2023, which is €600 million less than the previous year. Developers contributed less than €200 million, a decrease of around €502 million from 2022, underlining the impact of reduced construction activity.
Despite Berlin's robust market fundamentals—rising rents, declining vacancies—the cautious transaction market awaits lower interest rates, potentially spurring investments. One person bullish on prospects for the city is Einar Skjerven, CEO of the Skjerven Group, which has been active in the city for nearly two decades, who sees demand from potential owner-occupiers rising steadily since the beginning of the year. While these are fewer than in years past, he still sees plenty of buyers who have a good portion of equity for a purchase, despite the shortage of available apartments.
"Renovated existing flats are rare in Berlin. The favourable prices compared to new buildings make them attractive for many households, so that the asking prices have even risen slightly in recent months," says Skjerven. "In sought-after locations such as Charlottenburg and Wilmersdorf, we have seen an increase of five percent in recent months. Private investors, as against owner-occupiers, are currently focusing on apartment buildings. There is hardly any demand for individual flats, as the yield opportunities are less attractive compared to other investments.
It is striking that, despite high expectations, there have been virtually no portfolio purchases in Berlin to date. "Asking prices on the seller side are generally still a bit too high to attract buyers," says Skjerven. "Sellers asking for more than 20 times the annual rental income are meeting with hesitant potential buyers who would rather invest their capital elsewhere than be the first to pay that price. But when the first transaction goes through, a few more will follow."
Looking ahead, the volume of building completions from 2024 to 2026 is projected to drop, leading to even tighter vacancy rates. Continued immigration and refugee influx will maintain high demand for housing, and new letting rents are predicted to rise steadily. Energy costs are likely to stay high, impacting the cost of living further. Expectations for the transaction activity remain muted, with a possible uptick in larger transactions not anticipated until at least the third quarter of 2024.
Overall, the market for rental properties in Berlin is experiencing significant shifts, with reduced supply leading to increased demand and rising costs. The outlook suggests a market under pressure, with implications for renters, investors, and the broader housing industry.
