The Berlin Property Market
The Berlin Property Market has been influenced greatly by Berlin’s unique history over the last 90 years. It is this history and the uniqueness of the set of circumstances that it has created that makes investment into the Berlin property markets one of the most talked about property investment opportunities in the world.
Property markets are intrinsically linked to their countries prevailing economic and politic conditions, the property market of Berlin has been further influenced (and greater) by Berlins unique climate over this period.
It can be said that no city in the world has experienced the highs and lows that have been dealt to Berlin. A brief look into its history explains why Berlin now represents some of the cheapest housing in the world (certainly of any developed countries’ capital city),some of the highest tenancy rates and for the right investor an opportunity to invest into a property market that is full of potential for capital growth and excellent yields.
The 1920’s golden era
Our journey begins in the 1920’s when Berlin looked very different to today. The early twenties saw Berlin struggle under the weight of war repatriations, the mark plunged in value and inflation was rife. The Dawes plan of the 1924 saw the allies moderate their stance and loans poured into Germany, particularly from America, leading to an upsurge in the economy.
The ‘European’ capital Berlin could boast of:
- Being the most industrialized city of the continent
- The opening of Tempelhof airport
- The start of S-Bahn electrification
- The second biggest inland harbor within Germany
- A population of 4 million Berliners throughout the 1920s.
- The Humboldt University of Berlin (formerly The University of Berlin) was the major intellectual centre in Germany, Europe, and the World.
- Leaders in the field of sciences, especially favored from 1914 to 1933 (Albert Einstein served as director of the Kaiser Wilhelm Institute for Physics in Berlin, only leaving after the anti-Semitic Nazi Party rose to power.)
- Arguably the most open and tolerant city in Europe
In short, a cultural and economic leader with the property prices reflecting this standing.
Post war
Just 6 days before the end of the Second World War some 600,000 apartments were destroyed by bombs and large parts of Berlin were in ruins. The population had shrank from 4.3 million to 2.8 million and the occupying forces were in debate about how to split Berlin.
Four sectors were created and administered jointly by the United States of America, Great Britain, France, and the Soviet Union. In addition Berlin also then lost its status as capital of Germany which was relocated to Bonn.
The subsequent repercussions of this saw the creation of an East and West Berlin – East under communist rule and West under socialist (capitalism), Berlin as a city was separated by the physical presence of the Berlin wall – one of the strongest visual signs of the cold war and communist era, coinciding with the cold war years.
Post war, massive building had to be undertaken to re-establish housing and infrastructure in both East and West Berlin. History also suggests that for political reasons both East and West Germany propped up the economy of Berlin to demonstrate to its respective citizens and the world the merits of each political system. West Berliners further suffered from their geographical isolation from the rest of Germany – practicalities of distance and politics saw finance and manufacturing industries select homes such as Munich, Frankfurt, Hamburg and Cologne as their bases.
- In West Berlin large housing estates were built by the government on the city outskirts, this development continued until the end of the 1970s
- (construction on Gropiusstadt begins in 1962 and on Märkisches Viertel and Falkenhagener Feld in 1963)
- East Berlin city centre , as the capital of the DDR, saw large representative buildings built such as:
- Alexanderplatz, Marx-Engels-Platz, Kongresshalle, Haus der Elektroindustrie, Centrum-Warenhaus, the hotel “Stadt Berlin’”“Haus des Reisens, Staatsratsgebäude, the foreign office in 1967 (torn down in 1995), and the television tower in 1969.
Apartment houses were also built during these years on Karl-Liebknecht-Strasse and at the Rathauspassagen (1968-1972), as well as on Karl-Marx-Allee as far as Strausberger Platz (1959-1965).
The main investment into property was via the state, therefore creating apartments for Berlin residents to rent and the government to act as the landlord. Little stimulation or incentive was there for Berliners to own their own property, an anomaly still existing today with some 13% of Berliners owning property as opposed to a national average of 44%.
Post Berlin Wall
The opening of the Berlin Wall (1989) and the reunification of Germany (1990) resulted in a wave of optimism. The expectations for Europe's largest economy were fuelled further by the reinstatement of Berlin as Germany’s capital city.
The pent-up demand particularly from the East Berliners was immense. The conclusion at the time was that the city required a massive investment and construction programme in all sectors. Some 75 billion D-Marks was invested as infrastructure and housing was upgraded.
Berlin experienced a mini boom in property with prices increases in the early 1990’s but this soon levelled off.
1994 - 2004
The Berlin construction boom of the early nineties coincided with both the reduction in residents and more importantly their purchasing power. It also coincided with an increase in unemployment levels. The net result was a fall in the price of property and rental values. Berlin witnessed an increase in the availability of office and residential space without an appropriate increase in demand. Between 1994 and 2004 new property prices fell in Berlin by 30% and rents by 15%. The disposal of large property portfolios by public authorities further undermined price levels.
Property prices in most European countries significantly increased while those in Berlin stagnated or fell.
2004 -
Berlin and Germany saw itself in the 21st century with economic fundamentals improving.
Property prices increased for the first time in a decade and Berlin became popular as investors became attracted to the low price of property coupled with the attractive investment yields. This brought with it a number of foreign buyers, predominantly from the UK, Ireland, Italy, Denmark and Russia.
In addition, the moving of government was starting to have an effect as over 40 companies based their headquarters in Berlin attracting some 155,000 foreigners to relocate to Berlin.
Whilst manufacturing has so far not made the move this has to some degree been compensated by the media, communication and technology sectors.
Berlin continues to be seen as the gateway and link to the old eastern block countries, the continued expansion of Europe is seeing more and more of these countries prosper as they take up European union membership and receive funding. These countries represent new and expanding markets for which Berlin could play a pivotal role.
The people of Berlin continue to like to rent property with only 13% of Berliners owning their properties compared with over 40% in Hanover, Hamburg, Munich and Stuttgart. This lack of demand has kept prices low and provides buyers with ample supply of Berlin tenants.
Tourism has increased by 16% in 2004 alone. In excess of 2 , 000 four and five star hotel rooms have been built in the last few years including Ritz-Carlton and Radisson. There were 14 million overnight stays in 2005 compared to 11.2 million in 2003 and British tourism increased by 22% in 2006 alone.
Whilst the credit crunch takes its toll, the yields remain attractive, and in some cases where forced selling is taking place, very attractive. Many large corporates that entered into the euphoria of Berlin property in the 1990’s now need to access cash and reduce liabilities. In short cash is king and bargains are there.
Berlin continues to grown in stature and popularity, the infrastructure is second to none (the train station is reportedly transporting some 30 million passengers a year, 16 million tourists visited last year, the population is growing and it is staking its claim as the capital of Europe.
Berlin has a unique history and offers a unique investment opportunity.
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