Quo Vadis, Property Market Berlin?

The Berlin real estate market is familiar with the word "crisis". Since 2007/2008, anyone who has overcome the speculation period and then sustained properties for a few more years in view of the positive developments has known that a crisis is also always an opportunity. Does that also apply to the time after Corona? An analysis.

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The market is changing, but not only since Corona

Contrary to some opinions, there is no threat of a price collapse on the Berlin property market. Studies that only examine the period before Easter neglect the annually recurring supply shortage at Easter time, which was intensified this year by the corona crisis, but is already recovering. Activities on the real estate market have neither come to a standstill nor have there been any significant price corrections in purchase prices or rents to date. The decline in new listings for rental offers is more pronounced than for sale properties. A slowdown in sales and a stronger differentiation according to segments and markets can also be observed. The Corona crisis is thus accelerating the process of price consolidation, which was already apparent in the rental market in the light of the slowdown in Berlin's influx in 2019 as well as in the light of regulatory measures. An often unrecognised factor is the increasing density of household sizes. Berliners seem to have become accustomed to larger households under the influence of the only slowly declining housing deficit. In many places, this temporary solution has become the norm. And last but not least, the overall increase in construction activity over the past few years is not without effect.

Strong price increases as normality are over for the moment

The question that concerns all owners is always that of the value development. Reliable price estimates became increasingly difficult in 2019. In the preceding megacycle, which lasted almost 15 years, double-digit annual increases in value were the norm. Viewed over the entire Berlin urban area, the percentage price increase in the 10-year period was 206 percent. If we compare the median offered prices from the first quarter of 2020 with the first quarter of 2010, the increase for portfolio properties was 207 percent. The median offer price in 2010 was EUR 1,560/m², today it is EUR 4,770/m². In the new construction segment, inflation in the 10-year period is weaker at 125 percent. It is also noteworthy that 70 percent of the increase occurred in the period from 2010 to 2015. From 2015 to 2020, the rise in the median supply price was only about 55 percent despite the disproportionately high increase in the cost of building land and building costs. 

Development of the median asking prices for stock apartments in the 10-year period

Period Existing buildings Median Offer price Index (base 10 years = 100) New buildings Median Offer price Index (base 10 years = 100)
Current quarter 5,190 EUR/m² - 8,220 EUR/m² -
1 Year 4,980 EUR/m² 4.20 % 6,740 EUR/m² 21.90 %
3 Years 4,120 EUR/m² 26.00 % 6,080 EUR/m² 35.10 %
5 Years 3,340 EUR/m² 55.30 % 5,010 EUR/m² 64.00 %
10 Years 1,810 EUR/m² 186.60 % 3,250 EUR/m² 152.90 %

A number of factors and uncertainties

In order to assess where property prices in Berlin are going, a number of factors must be considered. In addition to the direct effects of the Covid-19 pandemic, the following parameters are relevant, among others:

  • long-term rental policy regulations
  • short to medium-term tenant protection mechanisms
  • interest rate development
  • migration from commercial to residential
  • migration from the capital to the real estate markets
  • the development of migration numbers
  • demand for real estate as a means of investment or for own use

Sellers and buyers usually face similar questions, but from different perspectives. While suppliers strive for a lucrative exit in their search for a market-driven offer price, buyers must consider the future development and risks of their commitment. In times of constant growth, the sale was like a relay race. After a holding period, the seller was rewarded for his commitment and the buyer could more or less rely on the fact that the value would continue to rise, provided that stable macroeconomic assumptions were made. The Berlin Super Cycle was driven by the population growth due to immigration and the resulting demand for residential space for rent and private use. In addition to this strategy, which is geared to classic yield opportunities, catch-up effects and low interest rates played an important role in the international context.

Price-determining factors

Factors for stable or
rising prices
Factors for price moderation
Long-term nature of
Real Estate
Crisis atmosphere and
loss of equity
Increasing influx
from harder hit
regions
Decreasing inflow e.g. due to
Student absences and job cuts
Shortage of the
Property supply (for the time being less new construction,
delay in approvals)
Shortage of the
property offer ( less new construction for the time being,
delay in approvals)
Falling interest rates due to
ECB support measures
Rising interest rates caused by the banking sector
Evasive movement
from capital markets
Regulation of the rental housing market
Evasive movement from
commercial housing
Risk of loss of rent and
shifting of risks from the state to the landlord
Negative interest on cash assets Falling yields due to regulation
Rising construction costs Removed
allocation options (1-euro rule)
Increased commitment from
major investors
Less
engagement of
private investors

First quarter 2020: sideward movement

The first quarter of 2020 will be characterised by a slight decline in new insertions with a stable sideways movement of prices on offer. Compared to the previous year, the decline cannot be described as dramatic, as declines are also measurable in 2018 and 2019 - typical for the Easter period. In view of the announced opening-up after the shutdown, we assume that the insertions will normalise in calendar week 18 at the latest and establish themselves slightly below the previous year's level. So far, the corona crisis has not put any pressure on offer prices; rather, a slightly opposite tendency is discernible, which can also be explained by a longer sales period for the properties due to contact bans. 

Short-term outlook

There is no question that the effects of the coronavirus are having an impact on the real estate market in Berlin. The short-term effects are expressed in operational difficulties in the sales process and in sudden liquidity bottlenecks.

  • The contact restrictions imposed against the Corona background lead to an overall decrease in supply, which is expected to recover quickly once measures are repealed.
  • Although the protective shield put up by the Federal Government for tenants shifts the risk of default one-sided to the disadvantage of landlords, it does not exempt tenants from paying rent. Most landlords are very tolerant towards their tenants. The resulting loss of rent can be taken into account for tax purposes.
  • In the case of commercial tenants, especially in the gastronomy sector, liquidity bottlenecks may continue as the return to normal conditions will only occur gradually.
  • An increase in insolvencies with the consequence of rising vacancy rates for commercial units cannot be excluded.
  • There are no signs of falling rents due to the corona crisis in the residential sector.
  • For the time being, the impact of the rent cap will lead to a reduction in rents for a limited time. 

The analysis of median asking rents up to March 2020 shows slightly rising asking rents. 

Mid-term outlook

As of March 2020, there is no reason for pessimism regarding the development of real estate values in Berlin due to the Corona crisis. But it is not cynicism to claim that the pandemic is hitting the real estate market in Berlin at a bad time. The emerging consolidation of purchase prices is not an effect of the Corona crisis, but the result of the regulation of the rental market in Berlin, which has been ongoing for years. 

  • Emergency sales will affect the commercial property sector, if at all
  • The shortage of supply due to less new construction activity leads to a favourable supply-demand ratio
  • The scenario of rising interest rates does not appear to be confirmed so far
  • Job insecurity associated with the corona crisis is a critical point
  • The difficult economic situation of small enterprises has little impact due to the small number of buyers coming from this sector.

The worry that purchase prices in Berlin would fall by up to 25 percent in the wake of the corona crisis seems unfounded. But: Before the pandemic, however, a sideways movement of purchase prices lasting more than a quarter was observed for the first time in years. Possible short-term price adjustments should rather be seen as a correction of price excesses. It cannot be ruled out that supply prices may fall slightly in the second quarter of 2020 depending on the location (district, quarter).

Development of new insertions and median asking prices of new insertions

Week Current calender week -1 CW -2 CW -3 CW -4 CW
Median asking price
(new insertions)
5,610 EUR/m² 5,640 EUR/m² 5,430 EUR/m² 5,500 EUR/m² 5,620 EUR/m²
Number insertions
per calender week
190 360 370 350 420

Long-term outlook

How the long-term perspective of a property market can be assessed depends largely on the investment strategy of the investor. As investors are forced to operate under the circumstances prevailing on the market, they must be highly flexible. Private investors in Germany are already long-term oriented in view of tax legislation. Short to medium-term dips, as they could occur in the case of the Corona crisis, are always inconvenient, but virtually unavoidable. The now weakening super-cycle on the Berlin real estate market was rather an exception with almost 15 years of trouble-free development. Since 2016, conditions for investors and owners have already been worsening as a result of the expansion of milieu protection areas, the conversion ordinance and most recently the rent cap.

  • The short to medium-term yield strategy is moving into the background
  • Real estate investments with a focus on long-term prices move into the foreground
  • In the long term, a continued low interest rate level can be assumed
  • Despite a slowdown in the number of people moving to Berlin, the existing excess demand will not be able to be met for years
  • Evasion movements from the capital to the real estate markets are considered probable

Although the political conditions in Berlin will not improve for investors in the medium term, it is to be expected that they will deteriorate in most European countries. This development will offset the competitive advantages lost in Berlin due to market regulation. The protective shield provided by the federal law for tenants in the wake of the Corona crisis has shown that a further shift of social welfare from the state to landlords cannot be ruled out. Moreover, it is not only Germany that is affected by increasingly restrictive regulation. There are similar efforts in almost all neighbouring European countries. It may sound paradoxical, but the fact that Germany, and Berlin in particular, has taken a pioneering role in regulating the market could now become a competitive advantage, at least in Europe. This is also supported by the fact that Germany's economic base is extremely stable by European and global standards. 

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