Hip Districts New Berliners Propel Property Prices

As Berlin keeps attracting more young, creative people from around the world, new districts are becoming more popular – and expensive.
It used to be a beer brewery, now it's a trendy apartment complex.

When James Guerin moved from Ireland to Berlin’s Prenzlauer Berg district in the 1990s, he had to learn German quickly in order to be understood. Today that wouldn't be necessary in many parts of the city.

“At Bonanza Coffee Heroes the barista only speaks English,” said Mr. Guerin in reference to a café on Oderberger Strasse in Prenzlauer Berg.

Berlin has indeed become international. In 2012 and 2013, the population rose by about 50,000 each year, principally through immigration, and the trend continued in 2014. “Many young people are attracted to Berlin from abroad,” said Tim Renner, formerly a music producer and now Berlin's culture minister.

The new Berliners alter the street scene, by hanging out in bars and restaurants in the hip districts and they also affect the real estate market inthe German capital.

Mr. Guerin's new project is aimed primarily at foreign buyers. The head of the development firm Natulis named his residential and commercial loft project in a former factory building in the Mitte district “A Space.”

We are now seeing the highest rent increases in inner-city outskirts such as Moabit and Lichtenberg. Michael Schlatterer, housing market expert, CBRE

Sixty residential lofts are planned at an average square-meter price of €5,700 ($6,451). The location seems expressly designed to promote the image of Berlin as a lively, historically resonant metropolis. Only a short distance away is a piece of the former Berlin Wall, and next to it is the Mauerpark with its flea market mentioned in every travel guide.

The square meter cost of €5,700 is high by Berlin standards. On average, apartments in Berlin cost €2,725 per square meter in 2014, according to the current housing market report issued by real estate and mortgage bank Berlin Hyp and consulting firm CBRE. This represents an increase of 10.1 percent compared to 2013.

The prices for rental apartments offered through advertisements increased by 6.6 percent during the same period. But rents didn't climb as rapidly as in the past, according to research commissioned by the association of Berlin-Brandenburg housing companies (BBU). Rents demanded by private owners in Berlin between 2009 and 2013 rose by no less than 39 percent — more than in any other German city with at least 1 million inhabitants.

 

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Even though Mr. Guerin sings the praises of the lively atmosphere in Berlin's Mitte and Prenzlauer Berg districts, other trendy areas have set the pace. Especially those that only a few years ago would have scared off any investor. “We are now seeing the highest rent increases in inner-city outskirts such as Moabit and Lichtenberg,” said Michael Schlatterer, a housing market expert at CBRE.

Gero Bergmann, a member of the management board at Berlin Hyp, said investors who want to acquire residential real estate portfolios are increasingly looking outside the Berlin S-Bahn ring, a railway that encircles a vast core of the city’s center. Prices at the established inner-city locations have risen dramatically. “For profit-driven investors, it is becoming increasingly difficult to purchase apartments inside the S-Bahn ring,” Mr. Schlatterer said.

That is also because many newly-arrived Berliners particularly value the slightly shoddy charm of formerly sketchy neighborhoods.

That is particularly evident in the northern section of the district of Neukölln, which lies inside the S-bahn ring. This area, known as Kreuzkölln because it borders Kreuzberg, made headlines only a few years ago as an economically deprived trouble spot. Today it’s home to rows of cafés and bars with a fashionable atmosphere of shabby vintage furniture, but also increasingly trendy designer stores.

In the most popular districts we'll see a doubling of prices in the next five to 10 years. Nikolaus Ziegert, real estate agent

The area has been discovered: Purchase prices for Neukölln apartments rose by 17.4 percent over the course of last year, according to the report by CBRE and Berlin Hyp.

More and more Berliners gradually are becoming able to afford the higher prices. The city is showing signs of an economic upswing. The number of those in regular employment, and thus obligated to pay social insurance, rose by 3.3 percent within a year, higher than in any other German state. “Berlin is more attractive to national and international companies as a location for investment and innovation than at any time since reunification,” said Cornelia Yzer, the city's economics minister.

The upswing also has a downside. Some fear less affluent households will no longer be able to afford rents in the inner city. A pressing goal for the Berlin city government is “to put a damper on rental increases and to assure affordable housing,” said Andreas Geisel, the senator for urban development.

Help could come in the form of increased funding for new construction and a requirement that in certain districts rental apartments could be turned into privately-owned apartments only with the approval of local authorities.

But such restrictions could lead to a further surge in prices, Mr. Schlatterer said. “The available stock of privately owned apartments could very well continue to rise in price each year by 7.5 to 12.5 percent” - precisely because the supply is limited, he said. Nikolaus Ziegert, a real estate agent specializing in apartments, predicts a rosy situation for owners of such properties. “In the most popular districts,” he said, “we'll see a doubling of prices in the next five to 10 years.”

 

Christian Hunziger reports for Handelsblatt from Berlin. To contact the author: [email protected].