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Business as usual: rents and prices rise
March 17th 2019
By Housing Market Report Berlin 2019 BERLIN HYP & CBRE
The range of asking rents and prices for apartments and apartment buildings in Berlin rose significantly. In the first three quarters of the year, the median of asking rents was €10.34 per square metre. This is 5.6 per cent more than in the same period of the previous year. Compared to 2017, the increase slowed down somewhat, but it is now following the trend of recent years: in 2017, the asking rents for new, rented lettings was 8.8 per cent higher than in the previous year; this figure had been between five and seven per cent in the three preceding years.
Luxury has increased the most in price
A stronger differentiation in asking rents is one striking feature of the year-on-year comparison: at the upper end of the market segment, the ten per cent of the most expensive apartments on offer, the median rose by 7.1 per cent to €17.13 per square metre. In the cheapest tenth of the offers, rent levels rose by 4.7 per cent to €6.46. Asking rents in this segment were thus on a par with subsidised residential construction on average. From a spatial consideration, there was little change in rent level differences. Urbanity and centrality continue to be the most important rent-influencing factors. The three inner city districts of Friedrichshain-Kreuzberg, Mitte and Charlottenburg-Wilmersdorf (in this order) are at the top. The average values of asking rents in these districts have reached or exceeded the threshold of €12.00 per square metre. At €12.99 per square metre (plus 9.9 per cent), the dynamics were particularly strong in Friedrichshain-Kreuzberg; this district recorded the highest increase in Berlin in absolute and in percentage terms. In the district of Mitte, the top segment reached the €20 threshold for the first time in Berlin. From a quantitative point of view, apartment-hunting households also found the largest offer in the central district, followed by Pankow and Charlottenburg-Wilmersdorf.
In the rental ranking, Pankow is one of the four districts with median asking rents between €10.00 and €11.00. In the order of the asking rents, Steglitz-Zehlendorf, Tempelhof-Schöneberg and Neukölln followed. Three of these districts are located in part in the city centre. The fourth, Steglitz-Zehlendorf, has the highest per capita purchasing power of all twelve Berlin districts and is home to some of the city’s most renowned villa districts. Of all Berlin’s districts, Neukölln’s asking rent increase of 2.6 per cent on average this year was the lowest – as with 3.8 per cent in the previous year. A boom in 2016, which has now waned significantly, had given cause for rises there.
A segment with falling asking rents
Apartment-hunting households in Lichtenberg, Treptow-Köpenick and Reinickendorf – three districts outside the city centre, but with partly very attractive leafy locations close by the water – were faced with median asking rents of between €9.00 and €10.00 per square metre. Lichtenberg has one special feature: one tenth of the apartments offered at the lowest prices there was the only market segment of all Berlin’s districts in which asking rents fell slightly, 0.8 per cent to a median of €6.20, compared to the previous year.
As in previous years, the lowest asking rents for new occupancy were in Spandau and Marzahn-Hellersdorf, the districts on the western and eastern outskirts of Berlin, respectively. Both were also the only districts in which the most reasonable market segment could still be rented on average for less than €6.00. Compared with the other districts, the supply was at the lower end of the range in quantitative terms, too.
Purchasing a condominium: price trend continues
The asking prices for condominiums in Berlin have risen by 12 per cent compared to the previous year. The median asking price recorded in the first to third quarters of 2018 was €4,150 per square metre. When price increases were almost all double-digit, as in previous years, demand exceeded the available supply of apartments for sale, which drove prices up. This is firstly due to the narrow rental market, which is now allowing an increasing number of apartment-hunting households to also consider the purchasing segment. Secondly, the still very low level of interest rates often mean that monthly credit instalments are below the level of rent for comparable apartments, even at high purchase prices. Thirdly, there are long-term motives for both domestic and foreign purchasers of condominiums, such as wealth accumulation and retirement provision.
As in previous years, the largest number of offers for condominiums was concentrated in the city centre or areas close to the city centre. Over 50 per cent of the advertisements were recorded for the four central districts of Charlottenburg-Wilmersdorf, Mitte, Pankow (including Prenzlauer Berg) and Friedrichshain-Kreuzberg: of these, almost 20 per cent related to condominiums in Charlottenburg-Wilmersdorf.
As in previous years, the Mitte district was the frontrunner in terms of asking prices. Here, the median rose by almost 11 per cent and, for the first time in Berlin, above the €5,000 per square metre threshold. At €4,873 per square metre in Charlottenburg-Wilmersdorf, the asking prices for condominiums were not far below this value. With asking prices in the top segment averaging just under €9,000 for the tenth most expensive condominiums, the two districts mentioned moved close together.
Among the inner-district condominium markets, Friedrichshain-Kreuzberg and Pankow also recorded median asking prices above the Berlin average of €4,150. Steglitz-Zehlendorf and Tempelhof-Schöneberg, located in Berlin’s south and southwest, were not far below this threshold. Asking prices in Lichtenberg and Neukölln were around €3,700. In terms of the number of offers in the reporting period, these two districts were also among the comparatively smaller markets.
Less movement on the outskirts of the city
The markets of the four other districts were relatively inconspicuous in terms of the advertised asking prices and partly also in terms of the scope of offers. The median asking price in Treptow-Köpenick and Reinickendorf was around €3,000 per square metre. Both districts are far from the city centre, but are attractive locations with ample woodland and lakes. Spandau and Marzahn-Hellersdorf occupied the lowest ranks in terms of market size and asking prices. On average, sellers demanded significantly less than €3,000 per square metre; Marzahn-Hellersdorf also has, by far, the smallest overall market. More than all other districts, it is divided into areas with almost exclusively rental apartments in very large apartment buildings from the post-war period and areas with predominantly single-family houses.
Low-priced segment exceeds €2,000 per m2
The sharp rise in asking prices in the lowest segment is one striking feature of the entire Berlin condominium market. It rose 18.3 per cent for the tenth of the apartments offered at the lowest price. Buyers in this market segment had to reckon with a median purchase price of €2,167 per square metre. Only in the suburban districts of Marzahn-Hellersdorf, Reinickendorf, Spandau and Treptow-Köpenick was the range of asking prices in the low-priced segment under the average €2,000 per square metre threshold.
Apartment buildings: less of them and even more expensive
The number of advertised offers to buy apartment buildings in Berlin has declined steadily in recent years. As in the market for condominiums, demand clearly exceeds supply. In view of the unbroken upward trend in rent and price levels and the lack of investment alternatives, many owners see no reason to sell. Even the state-owned housing companies, at times brisk sellers, are now trying to increase instead of decrease their portfolios.
In the first three quarters of 2018, there were fewer than 800 purchase offers for apartment buildings for evaluation in Berlin, making it increasingly difficult to make statements about price levels and their changes. This applies, above all, to statements on a small scale, but also to districts with only a small number of publicly advertised offers such as Lichtenberg, Marzahn-Hellersdorf and Spandau.
The median offer price for apartment buildings in the first three quarters of 2018 was €2,948 per square metre, compared to €2,621 in the same period of the previous year. Among all districts, the frontrunner is Charlottenburg-Wilmersdorf: only here was the median above €4,000 per square metre. Friedrichshain-Kreuzberg (€3,529) and Steglitz-Zehlendorf (€3,233) followed far behind. Mitte and Pankow ranked just above the Berlin average, all other districts ranked below. In 2018, in contrast to the previous year, there was no longer a district in which sellers charged an average of less than €2,000 per square metre for an apartment building.
Sought-after portfolios
The volume of portfolio transactions and forward deals (from 50 residential units upwards) reached around €4.6 billion in 2017, well above the previous year’s level. There were signs of a supply shortage in the first three quarters of 2018. In total, the transaction volume was only €2.8 billion, of which €1.2 billion was attributable to the Berlin part of the BUWOG Group as a result of the Vonovia acquisition. Berlin’s overall share in the nationwide transaction volume was only around 19 per cent.
Existing large-volume portfolios are only traded as part of acquisitions. In individual transactions, according to the Gutachterausschuss expert committee, more than 1,000 purely residential or residential/commercial buildings are still being sold each year. The market is therefore still fluid, but it is becoming more difficult to generate a significant purchasing volumes. As in the two previous years, project developments continue to play a significant role, accounting for around 45 per cent of the transaction volume.
Whether portfolio owners, publicly-traded housing companies, pension funds or private equity from Germany and abroad – the demand for residential real estate in the capital remains high, meaning that further price increases are becoming apparent for the ninth year in a row.