Although we would prefer to write Corona as a closed chapter, our current apartment building report must take the effects of the pandemic into account. The direction is positive for everyone: our mobility in Berlin has been restored and the restrictions in daily life are becoming less and less. Nevertheless, the virus has caught the real estate market in Berlin cold. Economic sectors have been temporarily paralysed and it is not yet certain how quickly the markets will recover and when the German capital will become a hub again. The state of emergency will therefore probably continue for a while and with it a more volatile residential and apartment building market in Berlin.
The pandemic has also shown how well tenants and landlords in Berlin actually get along. Many landlords have, without any compulsion and without being asked, helped their tenants and waived rents - and very few would ever talk about it. Perhaps this is one of the reasons why far fewer tenants have run into liquidity bottlenecks than feared.
All this shows that there is hardly a more stable market for investments than Germany, and within Germany hardly a more interesting market than Berlin. Especially apartment buildings are still in high demand as an investment form. Nevertheless, apartment buildings in Berlin do not sell themselves. There is still the milieu protection, the rent cap, pre-emption rights and averting agreements. These are hurdles for buyers which, together with the consequences of the pandemic, must lead to a certain amount of scepticism.
A complex situation, then: corona, regulation and reluctance to buy on the one hand; stability, low interest rates and, by international standards, still low prices per square metre on the other. Trapped in this scenario are owners who do not really know how to assess the value of their apartment building. With our carefully prepared market analyses, it is easier for you to see where and how you can place yourself with your property. Discover and enhance the full potential of your apartment building with us. We will be happy to prepare an individual, precise and market-driven analysis and show you the best strategy for development or sale.
Your Peter Guthmann
A tenant city needs tenements
In Berlin there are about 327,000 residential buildings with about 1.95 million apartments, the majority of which are apartment buildings with 3 or more units. About 1.45 million apartments in Berlin are rented. Around 337,000 units, including apartments in single and two-family houses, are occupied by the owners themselves. The last microcensus revealed a high number of vacant apartments, which arithmetically pulls the tenant ratio down.
Decentralised structures: many centres and many neighbourhoods
Berlin is facing similar challenges as other metropolises. On the one hand, building density is already high, while on the other hand there is still an acute shortage of housing. Inner city areas such as the open space of the former Tempelhof Airport, which has developed into one of the most popular and most frequented inner city areas in the world, are particularly sought-after and just as controversially discussed.
Unlike most other larger cities in Germany, Berlin has a decentralised district and neighbourhood structure. Instead of concentrating on a few centres or even just one, Berlin has many smaller and a few larger centres, each of which is equipped with urban functions of administration and supply. Where the structure is determined by distinctive commercial structures and a lot of through-traffic, the more popular residential quarters are mostly in adjacent locations. Correspondingly, the potential of an apartment building in Berlin is measured less in terms of location centrality than in medium-sized cities, and more in terms of micro-macro quality.
Over the past 10 years, square metre prices have developed strongly in all Berlin districts. In some locations the price development has been explosive. These include in particular the hip locations in Neukölln and Wedding, Moabit, Kreuzberg, Lichtenberg and Tiergarten. In the meantime, prices have calmed down in some of these locations.
Price-determining factors for apartment buildings in Berlin
Anyone who owns a rental property in Berlin knows the conflict between regulatory efforts on the one hand and market mechanisms on the other. The main driving force behind the price development of rental properties is the demand for housing, which in Berlin is mainly based on international migration. For decades, the migration surge and its consequences have been underestimated. New housing construction was politically neglected, and until the last legislative period, the state of Berlin even sold off valuable municipal housing stock for household purposes. Inevitably, developments in the mid-2000s led to a shift in the demand curve and to price increases that initially affected central city-centre locations and, a little later, peripheral locations. Instead of reacting to the increasingly rapidly growing housing shortfall with housing construction programmes, the state and districts have since intervened in the free housing market with ever more comprehensive regulatory measures.
The resulting distortions lead to several effects:
- The demand-driven value of an apartment building increases
- The value achievable on the market is artificially dampened
- The performance is retarded
Protection statutes (milieu protection), pre-emptive rights, conversion ordinance (Umwandlungsverordnung), averting agreements (Abwendungsvereinbarung) and, finally, the rent cap have different effects depending on the perspective.
- Stock owners split up stocks (that is, they divide apartment buildings into apartments)
- Sales plans are postponed for a period of more than 7 years
- Investor profiles are changing. Short- to medium-term commitments become long-term holding strategies
- Investments in the portfolio are postponed
At the same time, there are signs that buyers of apartment buildings in Berlin are carrying out an "inverse" comparison of the political framework conditions, means, to what extent will other federal states, cities and municipalities undertake similar regulatory efforts in the future?
Berlin could be regarded as being no longer over-regulated, but rather as fully regulated and thus as a calculable market.
In addition, the reputation of the German capital as a stable and safe investment location was strengthened further during the Corona crisis. The crisis-related reluctance of investors to spend money affected all investment locations during the pandemic. How growth rates develop in the coming years also depends on how quickly and unhindered the influx into cities and conurbations is. Growth rates similar to those in the 2010s are not expected.
Lateral movement in prices and longer marketing duration
Offer prices for rental properties in Berlin have more than doubled between 2008 and 2020. From 2019 to 2020, a slight downward trend was observed for the first time in years. The rent cap introduced in February 2020, the increasing number of milieu protection areas, pre-emptive rights of the districts (in favour of third parties) and the corona effect have a dampening effect. Overall, a longer marketing period can also be observed depending on pricing.
It should be noted that the pricing and marketing duration for apartment buildings in Berlin depends largely on the sales channel. Open marketing via portals is always the far less advantageous option. In any case, a discreet mediation via internal channels is to be preferred. Properties offered openly on the market usually reflect exaggerated prices and increase the risk of disruptive transactions, as well as the exercise of the right of first refusal in milieu protected areas. The discreet brokerage within our proven and highly solvent network regularly achieves the best possible results and protects seller and buyer from negative external influences.
Berlin tenants in good shape
When buying an apartment building in Berlin, investors not only look at the immediate yield and square metre prices, but also at indicators for purchasing power, net household income and rent burden ratio. A rent burden ratio of 46 percent is often taken for Berlin. The rent burden ratio is understood to be the share of gross cold rent in net household income. The political figure of 46 percent implies that the rent burden for Berliners is already too high, with the consequence that investors must or should assume that, in addition to political restrictions, there are also socio-demographic hurdles that make an investment in a rented house uninteresting. In contrast, the sample survey conducted by the Office of Statistics in the course of the 2019 microcensus suggests that the rent burden ratios are much lower. The Office of Statistics has determined an average rent burden ratio of 28.2 percent. The almost 20 percent lower rent burden rate varies depending on the type of household and income category. Broken down by household type, unemployed households in Berlin spend the highest proportion of income at 42.1 percent. Senior households spend 30.5 percent, households with children on average 31.9 percent. A figure of 33 per cent is usually regarded as normal.
Net household income rising rapidly
Viewed over long time series, net household incomes in Berlin have increased considerably. In terms of urban area, income in 2018 was 40 percent higher than in 2002, with the biggest winner in this period being the Pankow district, where net household income rose by 75 percent. In Friedrichshain-Kreuzberg the figure is 61 percent. Overall, 2018 will see a balanced picture among the districts. Districts with previously low-income households have caught up:
Migration and construction activity
Berlin is on the way to becoming a city of 4 million people. Growth through immigration slowed down noticeably in 2019 and was abruptly interrupted by the corona pandemic in 2020. Many Berliners with a migration background were forced to turn their backs on the German capital for the time being and have spent the corona epidemic at home. One possible scenario for the period after the pandemic is that a similar influx will occur as in the years after 2007, when Germany and Berlin became an anchor of stability and a place of longing for tens of thousands of young Europeans. Berlin is also seen by investors as a safe haven and real estate, especially apartment buildings in Berlin, as a long-term investment strategy.
- All migrations
The construction of apartment buildings in Berlin has picked up in recent years, but is nowhere near meeting the basic demand for housing in the capital. Between 2006 and 2018, almost 39,000 buildings were constructed in Berlin, including commercial properties and single and two-family homes. Our chart shows the concentration of building completion notifications by old districts since 2012.
The process of developing and thus also selling apartment buildings in milieu protection areas is associated with several hurdles and restrictions. Restrictions exist in the development, division and sale. The restrictions are more serious for the purchaser of an apartment building than for the seller. In particular, the provisions of the averting agreement, which a buyer must conclude, with the district to avoid pre-emption, are relevant to pricing:
- Buyers must agree to not divide the rented house for 20 years
- Rent limiting regulations limit the yield development and the owner's own use is restricted
- In the worst case the buyer loses the object after a long and cost-intensive examination.
A very precise preparation of the sale, including the preparation of all documents relevant to the examination, is therefore not only essential for a smooth process, but also has a positive influence on the price negotiation.
Despite a number of hurdles, apartment buildings in Berlin, also in protected areas, remain interesting for investors; international buyers in particular are increasingly focusing their acquisitions on a long-term value development strategy.
Environmental protection areas in Berlin
Use our milieu protection map to check whether your apartment building in Berlin is located in a protected area, an area under investigation or a suspected area. Our milieu protection map is continuously revised and updated on the basis of the resolutions passed by the district assemblies (BVV). Please also visit our milieu protection area for further information.
Conversion Ordinance restricts the scope of action for buyers and sellers
Since 2015, the conversion of rental houses into condominiums in protected areas has been subject to approval. The Conversion Ordinance (Umwandlungsverordnung), which remains in force for 5 years, was last extended for another 5 years in spring 2020. It is common practice to extend the regulation at will, as the example from Hamburg shows. Contrary to what is often claimed by politicians, the conversion of rented apartments into condominiums is the only way for many Berliners to get from rent to ownership. In milieu protection areas, permission for former owners is made conditional on the condition that for a period of 7 years the property is sold only to the tenants, which makes it virtually impossible to split a rented house. If a former owner sells his or her tenement in an environmental protection area, the buyer is requested to waive the division of the tenement for a period of 20 years in an averting agreement. The table shows how the conversions in the old districts have developed.
From rent to ownership: conversions in Berlin
Just a few years ago, apartment buildings in Berlin were considered to be self-selling. In a direct comparison, one could say that in 2010 the purchase price of an apartment building in a simple Berlin location and in a stable technical condition could be achieved with the same amount of capital that would be required to buy a large apartment in a hip location in 2020. The potential of apartment buildings in Berlin was already obvious given the catch-up effects to be expected. In the years between 2009 and 2013, there was an explosive increase in space turnover in all construction year classes. At this time, many owners of classic Berlin apartment buildings were disillusioned. Rents in Berlin were extremely low during the time of the Wall and after the fall of the Wall. The city offered few perspectives and today's neighbourhood locations were run-down. Economically, many apartment buildings were operating at the limit; there was no money available for measures that went beyond basic maintenance. The stock was heavily eroded, rents were often calculated gross and interest rates were high. The former symbol of the wealthy bourgeoisie was sold off.
When politicians today complain about an " excessive" rental housing market in Berlin, they forget their own mistakes. Starting with absurdly wrong estimates of the population development, through the sale of thousands of rental houses from the municipal stock, to the failure of housing construction programmes to meet the emerging housing shortage. In other words, the real estate boom of recent years, and this is particularly true for rental properties in Berlin, is nothing more than an overdue compensation for decades of investment, rent restraint, weak returns and ever-increasing costs.
What is the way forward?
How the market and prices for apartment buildings in Berlin will develop in the coming years depends on various factors:
- In a largely regulated rental market, buyers of an apartment building in Berlin must prepare themselves for long-term strategies
- Catch-up effects are becoming increasingly flat and value growth is becoming more organic than before
- The apex between regulated rents and square metre prices is approaching
- It can be observed that prices are already moving sideways
- Trend locations will have to assert themselves more strongly against classic prime locations in the future
- Upsides for expansion potential will be less likely to be exploited by sellers (fair share)
- Anchor projects (e.g. renewal of Karl-Marx-Strasse Neukölln, Steglitz roundabout, the district north of the main railway station) are becoming more important for the development of the surrounding area than before
- When and to what extent the influx to Berlin will resume will have an impact on the development
Apartment buildings in Berlin have developed excellently in recent years. In the coming years, the focus will be on developing strategies that are appropriate to the location and the rental development potential. Our agency is one of the best addresses in Berlin when it comes to bypassing the masses, using sound knowledge and sustainable concepts to achieve maximum added value for you in the development or sale of your apartment building in Berlin.
This report was last updated on 04.07.2020 .
The Guthmann Market Report is a semi-automated report about the property market in Berlin. All information has been carefully researched and is given to the best of our knowledge and belief. We assume no liability for completeness, deviations, changes and errors. Our report does not represent an investment recommendation.
Amt für Statistik Berlin-Brandenburg: Einwohnerregisterstatistik (Bewegungsdaten), Fortschreibung des Wohngebäude- und Wohnungsbestandes, Ergebnisse des Haushaltegenerierungsverfahren KOSIS-HHGen, Baufertigstellungen. IMV GmbH: Rohdaten Preise und Mieten. Senatsverwaltung für Stadtentwicklung und Wohnen: Umwandlungsdaten (2018), Geoportal Berlin (FIS-Broker). Immobilienverband Deutschland IVD (2018/2019): Immobilienpreisservice 2018/2019.
Housing deficit (Treemap): The Statistics Office updates the household data based on the 2011 micro-census. Determination of household count and statistical household size via household generation procedures (KOSIS). We calculate the real household size / housing deficits via the ratio number of inhabitants to number of apartments.
Purchase prices and rents (charts and reports): Calculation of the median on the basis of raw data, own visualization.
Migrations: Aggregation and visualization based on transaction data.