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Berlin’s Property Market Is Gradually Catching Up

DWH AG, am Oct 31, 2018 3:02:04 PM

The German and Berlin property markets continue to record unusually strong growth in the residential, commercial and office markets. Although price levels in the Berlin metropolitan region are now approaching those in other German metropolitan centers such as Frankfurt, Hamburg, Munich and Düsseldorf, this rising tendency shows no signs of stopping anytime soon, according to experts.

Work/life spaces offer promising returns

Demand for properties in the residential and office submarkets repeatedly exceeds supply, driving rental prices upwards. Economic conditions in Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne and Munich have never looked so favorable. Larger cities in particular reap the benefits of population growth and subsequent employment growth. Tourism is also a significant factor - one that makes Berlin particularly attractive. The prognosis of some 40,000 new residents per year will most definitely result in rising rents in the residential and commercial property sectors in Germany’s capital over the next few years.

After a strong demand for offices in the first three quarters of 2018, we now experience a decline due to lack of supply. The highest price increase was recorded in Berlin office rentals: an 8.5 per cent increase brought the price per square meter to a total of 32 Euros. The German office market’s positive development can be attributed to favorable economic conditions for expanding companies. Vacancy rates continue to decline as rental prices experience a widespread upswing. Economic growth will drive office markets in particular.

Economic development exceeds all expectations

Unemployment rates are lower than ever at 5.2 per cent, significantly lower than predictions made a year ago. The German economy experienced the most significant increase in years in 2017 when growth hit 2.2 per cent and reached a robust 2.3 per cent by the beginning of 2018. As both these factors exert a mutual influence on each other, the continuously high level of private consumption becomes an important pillar supporting the economy. 

Inner-city retail spaces get cheaper

Online trade continues to strengthen, however, making previously sought-after inner-city retail spaces less appealing. Demand for sole trader outlets has dwindled due to permanent competition with the internet. Once a drawcard for the commercial property market, the retail submarket has been stagnating since 2015. The continuing upswing and the generally good economic development ensure that retail trade hasn’t been affected too seriously.

Interest rates make investments attractive

In addition to the incredibly favorable economic situation, low interest rates have led to a high volume of investment, particularly in commercial properties. We can expect a slow increase in base interest rates, possibly starting in 2019.