After a turbulent couple of years on the Berlin residential housing market, characterised by the ravages of the pandemic, the drive for expropriation of the city's largest property owners, and the Mietendeckel decision - and subsequent overthrow by Germany's Constitutional Court - last week saw a very timely webinar organised by Berlin-headquartered communications agency RUECKERCONSULT to offer a snapshot of where Berlin currently stands.
There were plenty of lively contributions from influential local players on the panel, including lawyer Uwe Bottermann, investor Einar Skjerven, Dr. Simon Kempf, the CEO of logistics group DLE, and Juri Ostaschov, the chief data scientist at AI-driven agency PREA.
What did we learn? Well, there's been a surge in new apartment sales in the city in 2021, at 19,017 units sold, up a total of 19% on the first pandemic year of 2020. The panellists were in agreement that demand is back following the Mietendeckel hiatus, supply of rental apartments is still contracting, and interest rates were still low throughout the year.
The rent cap was supposed to freeze rents for around one and a half million apartments at the level of June 2019, but was overturned by the Federal Constitutional Court in April 2021. Since then, prices have been rising again correspondingly more strongly in the wake of a catch-up effect.
According to Einar Skjerven, CEO of Skjerven Group, “Berlin is actually a renter’s city by nature. But the rent cap imposed by Berlin’s state government caused the supply of rental apartments to decline, at one point by about 40%. The situation turned many people, who would have loved to rent, into home buyers. The demand for move-in-ready apartments right up to the end of the year exceeded anything we have ever seen.”
He added that the standing-property sector also benefits from the fact that new-build housing construction is declining at a time when the city’s population is growing. Only 16,337 apartments were completed in Berlin in 2020, equalling a year-on-year drop of 14%. Given the regressive planning approval figures, the trend is likely to persist in the years ahead, which in turn will keep driving up prices for existing apartments, said Skjerven.
Skjerven's group, which buys real estate in the city for a number of global real estate investment partners in tailor-made joint ventures, inevitably pays lower prices per unit than individual buyers. Despite the rise in interest rates of around 150 basis points over the past six months, Skjerven expects to see further steady development of the market. “The willingness to invest remains strong, and there is plenty of equity capital pushing onto the residential property market of Berlin. Since few are willing to sell, the number of tenderers may decline but not the number of transactions.” Neither are prices likely to be affected by the current economic upheavals, he believes.
Residential prices in the city are still outpacing rent increases, although non-regulated apartment prices are rising faster than new lease agreements, which are more likely to be subjected to rent control. The city’s so-called rent freeze (“Mietpreisbremse”) mandates that rents on new leases may exceed local benchmark rents by no more than 10%.
The difference in dynamic is confirmed by data from real estate service provider PREA, which measured an increase in median rents in the inner-city borough of Charlottenburg-Wilmersdorf by 6.1% to €21.17 per square metre (per month) and an increase in selling prices for individually sold apartments of 10.2% to €10,458.41 per square metre.
No borough in Berlin matches this rate of increase except Spandau at 6.1% each, reflecting strong rental upside potential along with traditionally lower sales prices in the peripheral borough.
In the poorer eastern borough of Marzahn-Hellersdorf, by contrast, a large municipal housing stock slowed the rent growth down to 3.0% (€13.31 per sqm) whereas the mostly new-build ownership apartments here experienced a price hike of 10.5% to €5,326 as a result partly of the rapidly-rising input prices.
The peak figures for both rent and price growth were registered in the trendy borough of Friedrichshain-Kreuzberg. Here, PREA measured an increase of 8.1% to €22.50 per sqm and by 11.2% to €9,170 per sqm, respectively.
There were warnings, though, about what future investors may have to contend with. Uwe Bottermann, partner at local law firm Bottermann Khorrami, highlighted howBerlin’s state government keeps trying to regulate rents via landlord-tenant law revisions aimed at tenant protection. A case in point is the expansion of historic district protection and the right-of-first-refusal initiative launched in Germany’s upper house of state representatives, the Bundesrat.
“There are currently around 70 areas in Berlin, home to one million residents, where capital improvements are subject to approval and where every sale until November 2021 was subject to the right of first refusal,” said Bottermann. This practice has been axed for the time being by the Federal Administrative Tribunal.
However, Berlin’s state government is seeking to reintroduce the right of first refusal, according to Bottermann, and has therefore launched a legislative initiative via the Bundesrat, which will now have to be reviewed by the Bundestag, Germany’s lower house.
“These measures will cause many apartments in the inner city of Berlin to retain their basic specifications,” said Bottermann. “Anyone buying existing apartments in Berlin should be aware that raising their residential fit-out standard may take a long time.”
Since the number of apartments approved and built in Berlin lags behind demand, developers and apartment seekers have increasingly looked for alternatives out beyond the city limits. Last year, as many as 24,691 Berliners turned their back on the city and moved into suburban communities in the surrounding state of Brandenburg.
One of the most dynamic growth regions currently extends from the new airport (BER) in Schönefeld to Grünheide, site of the new Tesla factory which recently started its production.
Dr. Simon Kempf, Co-founder and CTO of developer DLE Group AG, which is developing a 600,000 sqm building plot in the area, said that, “Procuring planning rights is a complex matter in Germany that must take the interests of the municipality and of its residents into account. We are doing everything we can to find optimal solutions here and to create attractive infrastructure along with the residential accommodation.”
Separately, a new report "Wohnmarktreport Berlin 2022" published by financing bank Berlin Hyp and broker CBRE, confirms how difficult it still is to find an adequate apartment in the city. Presenting the report, Berlin Hyp CEO Sascha Klaus said "Finding an affordable flat in Berlin has never been as difficult as it is today. At the same time, new construction is inhibited by a lack of building plots, long official processing times and a shortage of construction workers and materials."
Michael Schlatterer, Senior Director at CBRE said: "The recent rise in asking rents primarily represents a catch-up effect of the rent cap, (Mietendeckel). What is certain is that demand for housing in Berlin will continue to rise, even if this development was temporarily curbed by the Corona pandemic. Soon, Berlin is likely to attract more people again - and thus further fuel the dynamics on the housing market".
