Real estate developers in the Berlin-Potsdam metropolitan region are benefiting from Berlin’s attractiveness as a place to live and do business, and from the resulting demand for residential and commercial properties. The total volume of completed, under-construction and planned projects was almost seven million square meters in the period under review (2010 to 2017). This marks a 12.9-percent increase on last year’s figures and shows that the growth trend in the metropolitan region is continuing unabated. Significant increases were also seen in the monetary volume (€22.4 billion) and in the number of projects (993) compared to the previous year.
These are the findings of the study “The Real Estate Market in the Berlin-Potsdam Metropolitan Region”, conducted on behalf of HOCHTIEF Projektentwicklung. The independent analytical firm bulwiengesa AG evaluated projects with 1,000 square meters or more of rental/floor or residential space that are being carried out by developers in the Berlin-Potsdam metropolitan region. The 2013 report was the seventh such study conducted by bulwiengesa. The figures for 2013 include developments completed since the beginning of 2010, as well as those under construction or at the planning stage on July 1, 2013 that are due to be completed by the end of 2017.
With a more than ten-percent increase in overall floor space volume, Brandenburg’s capital Potsdam is currently enjoying dynamic growth similar to that seen in Berlin. However, Berlin continues to be the region’s driving force in the project development market, with its share of the total floor space volume remaining constant at 92 percent. This is also true for the transaction volume of €7.3 billion achieved in 2012, which set a new record for Berlin. In addition to this, the residential segment reported a transaction volume of €3.1 billion, significantly closing in on the level of commercial revenue.
The residential sector is the main growth engine for project development business in the metropolitan region. Totaling 4.35 million square meters (+24 percent), new construction in this segment accounts for 62 percent of all projects. In second place are office projects with a total volume of 1.15 million square meters, an increase of 14 percent compared to last year. This is the first time that this area has improved since the initial study in 2007. Volume in the remaining segments was down in 2013 over the previous year: retail real estate shrank by six percent again, to 584,000 square meters, bringing its volume to a record low. The decline in hotel developments was even more pronounced – a 22 percent drop to a meager 547,000 square meters.
In the entire metropolitan region, 1.6 million square meters of residential developments were at the planning stage as of mid-2013, a 45-percent increase compared to the previous year’s analysis. With a share of 57 percent, residential developments accounted, for the first time, for more than half of the monetary value of all projects covered by the study. “The residential market in Berlin and Potsdam is primarily fuelled by local developers who are realizing increasingly large projects because of the increased demand,” said Gordon Gorski, head of HOCHTIEF Projektentwicklung’s Berlin-Brandenburg branch. “The circumstances are particularly favorable as a result of continuing high demand and good financing opportunities.”
This residential supply has been met with steady high demand, which has also had an impact on the development of rents and purchase prices. Top rents (the average price level in the premium segment that makes up three to five percent of the market) in Berlin’s residential properties have risen continuously since 2005. At the end of 2012, top rents were €15.30 per square meter in Berlin, around nine percent higher than at the end of 2011. Top rents in Potsdam remained unchanged at €12 per square meter during the same period.
New highs were reached by the top prices fetched by newly constructed condominiums: €5,500 per square meter in Berlin and €4,050 per square meter in Potsdam. “Compared to other popular German cities and especially to large cities in other countries, purchase prices here are still at a moderate level,” said Andreas Schulten, a board member of bulwiengesa. In Potsdam, people have to pay an average of 6.7 times their annual salary to buy a condominium, while in Berlin the average is 8.3 times their annual salary. Both of these figures were significantly lower than those in top-tier cities such as Munich (11.1) and Frankfurt am Main (9.7). This price differential is also reinforced by the relatively low level of average annual salaries in Berlin.
In the future, the average size of residential units in the German capital will decline, and projects will increasingly focus on other types of locations. Newly planned developments are already, on average, several square meters smaller than they were a few years ago. Residential projects are now also increasingly found on major thoroughfares; not too long ago, there was no demand for housing in such locations. Similar trends have already been identified in cities such as Munich and Frankfurt am Main.
Office real estate back on growth track
The increase of 145,000 square meters in RA-C terms (the rental area of commercial properties according to the standard used by the Society of Property Researchers, Germany) seen in office developments was the result of both projects steered to completion from 2010 to mid-2013 (+91,000 square meters) and developments at the planning stage (+80,000 square meters). Only properties under construction saw a slight decline (-26,000 square meters), and make up a small percentage of the total volume. “The hot spots in Berlin’s office project developments are the eastern Spree River area between the Friedrichshain and Kreuzberg districts, the stretch of property in the vicinity of Berlin’s main train station including Europacity, and the section of City West around the Kurfürstendamm/Tauentzienstrasse boulevard,” said Gorski.
The declining office vacancy rate, which has fallen steadily over the past years, is also reflected in the development of top rents in this segment. In 2012, these climbed to €22 per square meter in Berlin, though they remained unchanged at €11 in Potsdam. “In the second half of 2012, a great many high-end projects were completed in Berlin, significantly pushing up the level of rents. Due to the continuing high demand and the scarcity of high-quality space in central locations, it is expected that rents will continue to rise and that the rate of return will remain below five percent,” said Gorski. In Potsdam the net initial yield on office real estate investments totaled 6.7 percent at the end of 2012.
Pace of decline in retail segment has slowed
The volume of retail developments dropped again due to the economic downturn of 2009-2010. However, the decline of six percent was significantly lower than the 2011 and 2012 figures (23 percent and 18 percent respectively). “During the crisis years of 2009 and 2010, relatively few projects moved from the planning to the implementation stage,” said Schulten. However, he expects to see a reversal of this trend in the near future. The investment volume of the retail projects slated for completion in the coming year will be approximately €772 million, after totaling only €348 million in the current year.
Buoyant consumer confidence and an increasing number of residents and tourists have put Berlin at the top of the expansion lists of national and international chains. This has lifted top rents in prime locations around the Kurfürstendamm/Tauentzienstrasse boulevard to their current level of €240 per square meter. Top rents in Potsdam’s prime retail locations are currently €70 per square meter and have been very stable for years. The net initial yields on retail real estate – currently 4.5 percent for Berlin and 6.1 percent for Potsdam – remain at the previous year’s levels.
Hotel market takes a breather
Berlin is by far the most popular city with tourists in Germany. The number of registered overnight stays has grown steadily for several years now and recently reached a record high of almost 25 million nights. This puts Berlin in third place behind London and Paris. After two years in which a relatively large amount of hotel space was completed, the corresponding figure for 2013 is significantly lower, while the number of projects under construction or at the planning stage has remained roughly the same. Overall in Berlin, eleven hotel developments with a combined total of around 2,400 rooms are under construction and another 18 with more than 3,500 rooms are at the detailed planning stage. The hotel market in Potsdam continues to be marked by a very low level of activity, and there is currently only one project under construction and one planned project.
Graphics and images used in the study are available on request.