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German cities still dominate Emerging Trends Europe’s top 10 picks for 2019

January 8th 2019

Source: Emerging Trends  in Real Estate 2019

Given that Europe’s property industry prizes the safety of scale, liquidity, and growing economies, it is no surprise that German cities still dominate Emerging Trends Europe’s top 10 picks for 2019. Berlin has many devoted fans: “Everybody wants to be there, and rents are going through the roof,” says a pan-European investor.

The industry’s love affair with Berlin is set to continue into 2019 – the 30th anniversary of the city’s reunification – although a first few cautious notes are beginning to creep in amid the accolades for a market that one interviewee characterises as “white hot”. “Berlin is still everyone’s global darling given the pent-up demand, the dynamic of the government, the city being a tech growth capital and the low cost of rents and operations.

The problem, though, is that it probably can’t support significant growth without new development,” muses an international financier. “It’s a market with a lot of pent-up opportunity, therefore everybody loves it, but they have to make sure that the growth is balanced and measured so it doesn’t tip over.”

The scope for development is borne out by an office vacancy rate at an unheard-of low of 2.7 percent. “In all asset classes
vacancy in the core of the city has almost disappeared,”says a local broker. Meanwhile rents and prices are rising swiftly across all asset classes. “You can’t get space. Everybody wants to be there, and rents are going through the roof. The millennials want to go there.

In a way it is nice that such a city in Germany is finally getting the global appreciation it deserves,” says a German investor, before adding the caveat: “But there is an immense hype about Berlin. Watch this space for a hard landing when people find that they have overpaid for assets or the space they are renting.”

Berlin is certainly a seller’s market at present, and those investorswho have doubts about the future are looking towards the exit: “We’ve historically been a big investor there, but we’ve been selling assets. There’s a big development pipeline building up, and it feels like there is some of the speculative fervour building there that you saw in the last cycle,” warns a pan-European asset manager. Even so, there are supporters who maintain that Berlin is still cheap compared with Europe’s other big cities. And as one interviewee predicts: “Once it gets the new airport it will get another phase of growth.”