German spotlight: Berlin Offers Opportunity and Frankfurt, Stability
When considering Berlin property, affordability springs to mind – homes are a fraction of the price compared to London and Paris. First time buyers and investors – who may feel intimidated by prices in first-tier cities, but still want a foothold in Europe – are looking to the German capital, where there is good investment potential.
These are exciting times for Berlin. Formerly run-down neighbourhoods have been transformed into fashionable, hip hangouts. Infrastructure development is rolling out, from a new international airport with connections to the Berlin S-Bahn and the wider regional and national railway grid, to new international hotels and retail sites rising up around the city. A large regeneration area directly behind the central train station will bring Berlin another centre of commerce, with integrated retail sites and mid- to high-end residential properties.
The city has been witnessing an emerging start-up scene and IT sector, with the likes of Facebook, Expedia, Google, Amazon and Tesla entering the market. Global tech investor Klaus Hommels, whose investments include Facebook, has ploughed €1 million into the ‘Factory Berlin’ technology club that houses SoundCloud, Twitter and Uber among other tenants. "I’m investing in Factory Berlin because I’m committed to the tremendous potential of the Berlin tech ecosystem, and I believe Factory is lifting this potential by creating a powerful community for both the new and old economy," said Hommels in a 2015 press release.
“When you have affordable real estate, good quality of life and an attractive atmosphere for young, dynamic talent, and then add in a new international airport and other revamped infrastructure, you start reaching a tipping point,” asserts Mark Elliott, Associate Director with JLL’s International Residential Property Services team. “Eventually property prices are going to start catching up with London.”
According to Elliott, property prices in Germany can come in at one-tenth of the price of properties in London. The price difference is even more impressive when comparing a one-bedroom apartment for €118,000 (£100,000) in the Mitte—the centre of Berlin—to a 1-bed in London’s Mayfair in Knightsbridge valued at €2.36 million (£2 million).
The absence of new high-end developments in Berlin over the past decade has resulted in pent-up rental demand. This has pushed up rents in the city by 3.9% per annum over the past five years, versus 2.4% growth in the international finance centre of Frankfurt. Meanwhile, mortgage interest rates have remained at record low levels of below 2% in real terms after adjustment for inflation.
For those carefully considering these yields, Berlin is definitely a mid- to longer term investment. Elliott warns that it’s not a “buy now and flip in six months” market like Singapore, but he does see the coming months as an opportune time to buy in Berlin, before the new airport is targeted to open in 2018 and more economic migrants flock in. The city’s population rose by 47,000 in 2015, mainly due to the inward migration of younger people to the capital.
“If you want an instantaneous rent return, and potential aggressive future growth, look at Berlin. Berlin is the next opportunity. Frankfurt is the next stable market,” says Elliott, who points out that property prices in Frankfurt are around the €354,000 (£300,000) mark.
Considering Frankfurt already has an international airport, well developed infrastructure and a large number of world banks, as it is home to the European Central Bank, there is less room for continued upwards growth.
“Frankfurt’s properties aren’t going to increase to €709,000 (£600,000), whereas Berlin’s prices will go up to €354,000 (£300,000) or €472,000 (£400,000). That means you can triple the value of your investment over time,” concludes Elliot. “Frankfurt offers sustainable growth versus Berlin’s aggressive growth.”