Berlin gross rents fall for the first time as ancillary costs offset rising base rents

Something unusual happened on Berlin's rental market in March 2016. According to the Statistical Office of Berlin-Brandenburg, gross warm rents fell slightly year on year for the first time, even though net cold rents continued to rise. A closer look at the numbers is worthwhile for owners and tenants alike.

Base rent up, ancillary costs down

Net cold rents rose by 0.2 percent compared to the same month a year earlier. Ancillary costs, however, fell by 4.0 percent. The net effect: gross rents declined by 0.3 percent. The savings on ancillary costs outweighed the rent increase.

Ancillary costs have been falling for over a year. Initially, political decisions played a role, such as the forced reduction in Berlin's water charges. Later, historically low energy prices on the global market pushed heating and hot water costs down further.

A reversal is already in sight

The data suggest the effect is fading. Compared to the previous month, heating oil prices rose by 11 percent in February. Overall ancillary costs stagnated, while net rents edged up by 0.1 percent. Gross rents are likely to start rising again in the coming months.

Lower gross rents make reletting easier, for now

The 0.2 percent rise in net cold rents stabilizes yields, while the 4.0 percent drop in ancillary costs makes properties more competitive on the market and can make reletting easier, particularly for apartments in Berlin in sought-after locations like Mitte.

Investors evaluating acquisitions should examine the composition of rents carefully. A gross rent that depends heavily on low energy costs can shift once heating oil rebounds, as the 11 percent monthly rise in February already signalled. The underlying dynamic of climbing base rents on the Berlin housing market stays intact.