‘Super cycle’ could make city one of most expensive in Germany

Just over 25 years since the fall of the wall, the future looks bright for Germany’s start-up capital. Berlin has cut its ties with its communist past and undergone a remarkable renaissance. Its economic growth rate of 2.7% is the highest in the country, wages have risen and unemployment is at a record low.

A report by Deutsche Bank says that Berlin’s ‘super cycle’ could continue beyond 2020 and, while property prices are relatively low at present, it could become one of the most expensive locations in Germany.

With the recent news that Samsung is relocating its European HQ from London to Berlin, the Benoit team have spent almost a week in the city, understanding the local market and the factors behind its transformation.

“Berlin is buzzing,” says Matt Lavin of Benoit Properties. “It’s a dynamic and vibrant location, with a young and diverse population made up of many different nationalities. The city is a European growth hub, attracting some of the world’s biggest companies. For property investors seeking long-term capital growth, and to diversify their portfolio, it provides a real alternative to the traditional hotspots such as the UK and US.”

An economic powerhouse

Germany’s economy has expanded at its fastest pace in five years and Berlin is a driving force behind it. More businesses are started in Berlin than any other German state. The city leads the country in IT start-ups, it has Germany’s largest digital workforce and the highest percentage of self-employed people.

Berlin houses the headquarters of global names such as Mercedes Benz, Siemens, Deutsche Bank, Bayer and T-Mobile, to name but a few. It is Germany’s most popular university city, and one of the biggest centres for research and development. It also has a buoyant tourism industry, it leads the country in sporting events and is also Germany’s number one film location.

Berlin has seen employment growth of 4% in 2016 and more than 20% since 2009. Unemployment fell to below 10% in 2016 – its lowest level for a quarter of a century. Deutsche Bank says that economic growth in Berlin is likely to remain strong in the future and its population is expected to increase by more than 250,000 by 2030. It believes that a number of factors are at play in Berlin’s ‘super cycle’ and they could persist well beyond 2020.

A strong housing market

Between 2010 and 2015, Berlin’s population has been growing by around 50,000 per year, with only 8,000 new homes being completed across the same timescale. “The lack of building land and rising land prices present barriers and even where permission is granted, completions can be slow,” Matt Lavin explains. “As a result, there is a huge undersupply which looks unlikely to be met over the next 10 years.”

While the city authorities plan to construct more municipal housing, it is not sufficient to replace the loss of existing stock, and in fact the level of social housing is expected to reduce from over 210,000 to 80,000 by 2025.

Over 15% of Berlin’s population own their own homes. Rents have almost doubled in the past decade to reach €10.15 per sqm at the end of 2016, the first time they have exceeded the €10 mark and equivalent to a 12.3% year on year rise.

Meanwhile asking prices for apartments rose by 9.6% last year to €3,510 per sqm, and have more than doubled in a decade. While prices have caught up with other major cities in western Germany, they remain low by international standards – and even by some other German cities. According to Deutsche Bank, you can buy three houses in Berlin for the price of a similar home in Munich.

However it points out that prices in Berlin have been rising faster than any other German city and it predicts that the gap between supply and demand will continue to drive them higher still this year. Berlin is also ranked #1 in Europe for investment prospects and capital value increases by PwC.

While the city has imposed price caps to slow down increases in rent, it does not apply to all properties, including renovations and new builds, and it is not necessarily a bad thing as it could help stabilise the market, argues Matt Lavin.

“With Berlin we expect to see organic price growth without the boom and bust situation you see in some other property hotspots,” he says. “We believe it offers arguably the safest and strongest place to buy for long-term wealth preservation. While Berlin might not be right for those who want to maximise short-term rental yields, for investors looking to put their money in a stable location with a strong economic story and excellent capital growth prospects, Berlin is the place – and if you buy and hold for 10 years, there is no capital gains to pay.”

Working with some of the biggest names in the market, Benoit Properties has identified some of the strongest growth areas in the city offering the best combination of price, location and growth potential. Prices start at around €150,000. We also have a local management team in place taking care of all day-to-day aspects of your investment.

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