Welcome to this comprehensive and detailed report about Berlin real estate trends, aggregated by Zibel from the best sources available.
Last updated 10 December 2020
Berlin in the age of COVID-19
The Berlin housing market seems to have survived the coronavirus crisis relatively unscathed. In fact the crisis seems to be causing a refocusing on property values. Contrary to what was expected, the pandemic has not interrupted the upward trend of real estate prices in Berlin. At most, a temporary deceleration in price appreciation can be observed. The number of properties on offer is also slowly increasing for the first time in years. From June 2019 to August 2020, the real estate supply in Berlin grew by more than 35%. The offered prices are about steady at 4,950 EUR/m².
Purchase offers, segments and median offer price:
Introduction of the Berlin rent cap in February 2020
Whilst the market for properties for sale has remained buoyant throughout 2020, the Berlin rental market remains far below the previous year's level in volume terms. The introduction of the rent cap in Berlin in February 2020 has led to a substantial drop in the supply of rental housing. Even before the rent cap, rents in Berlin had risen only moderately, recently by 3.50 % in the previous 12-month period.
Rental offers, segments and median offer price:
Berlin real estate price trends 2010 to 2020
For more than 10 years now, property prices in Berlin have been rising consistently. In 2010, the median offer price for Berlin real estate was around 1,550 EUR/m². As of 08.12.2020 it is at 4,950 EUR/m² for properties built before 2015.
Purchase prices for Berlin real estate have shown consistent linear growth:
Types of residential occupation in Berlin:
At the end of 2018 there were almost 327,000 residential buildings in Berlin with about 1.95 million apartments. The majority of residential unites were in multi-storey buildings with 3 or more units. About 1.45 million apartments in Berlin are rented. Around 337,000 units, including apartments in detached and semi-detached houses, are owner occupied.
Price growth in new building offers in Berlin since 2010
Housing stock in Berlin
The median asking price for Berlin residential real estate is currently about 4,950 EUR/m². The price increase from 2019 to 2020 is approximately 5.9%. In the new building segment (built after 2015) the median asking price for all locations and apartment types is currently about 6,520 EUR/m². New building projects are on average priced at 6% higher in 2020 than they were in 2019.
Owner types for apartments for rent in Berlin | Types of occupation of residential real estate in Berlin
Rent trends in Berlin for 2020 and beyond
The upward trend in rents in Berlin is slowing down notably for a number of reasons not limited to the rental cap. Rents are now a major topic of discussion amongst Berliners. The sharp increases in Berlin rents during recent years were also not only due to the scarcity of supply and the slow pace of new construction. Significantly higher construction costs and land prices are played a key role in the driving up rental prices and purchase prices. Accordingly, rents have appreciated most within the 'new construction' segment of buildings that were erected after 2015. These rents are currently advertised at a median rent of 18.00 EUR/m², which corresponds to a price adjustment of about 6.8% between 2019 and 2020. Between 2015 and 2020, rents appreciated by over 46%.
Large parts of the housing stock are heavily deteriorated as a result of many years of letting. Prior to the introduction of the rent cap, rented apartments were therefore often extensively renovated before new rentals were made in order to attract a higher rental. But since the introduction of the rent cap in February 2020, more and more rented flats have been re-let without modernisation. New contract rents advertised during 2020 averaged around a median of 11.30 EUR/m². This corresponds to a price adjustment of only 1% compared to the same period of the previous year. By contrast over the last 5 years the new contract rents in Berlin appreciated by 32.6%. Clearly this trend is now slowing.
Two rents in Berlin: German Civil Code (BGB) and rent cap
The rent cap means that two rents apply in Berlin. Since the law is limited to a five-year term and there is the possibility that it will fail at the Federal Constitutional Court, landlords must ensure when concluding new rental agreements that the rent permitted under the German Civil Code will flow after expiration or in the event of failure. This is only applicable when the rent in rental agreements continues to be based on the German Civil Code (BGB), but only the rent cap rent is demanded during the period of the law's effect.
The below chart shows a clear shift in the rental price segments. During 2020 about 60,260 existing apartments were offered on the market for new rentals. The largest number of offers were registered in the medium price segments of 8-11 EUR/m² and 11-14 EUR/m².
Development of rental prices in Berlin by segment:
Excess demand for housing in Berlin
The shortage situation on the Berlin housing market cannot only be explained by the influx of new residents. A look at the past shows that the waves of immigration were based on an overhang of demand that was already high. In 2013, there were about 3.470 million registered residents in Berlin. With a statistical household size of 1.76 persons, the arithmetical demand at that time was 1.971 million apartments. The capital was already lacking around 88,600 apartments at that point - and since then Berlin has continued to grow.
Excess demand for housing in Berlin by quarter:
Berlin real estate prospects beyond 2020
There are only a few countries in the world that have done as well as Germany in dealing with the COVID-19 pandemic. Whilst the pandemic may have caused a pause in transaction activity, it is extremely likely that the Berlin real estate sector will quickly return. Somewhat paradoxically, the regulatory measures in the rental market will also have a positive influence on further real estate development, because Berlin real estate investors can build upon a clearly defined set of rules, whilst countries may bring new regulation in the wake of the crisis.
In summary, Berlin remains highly attractive as a destination for real estate investment for the following six reasons:
1) Investment safety
Germany is the second largest exporting economy in the world and the leading economy in the Eurozone. It is quite possibly the safest country for business and investment in all of Europe. Berlin is also emerging as a leading destination for start-ups, with 70% of Germany start-up investment flowing to ventures that are based in Berlin.
2) Lowest real estate prices in Europe
Berlin real estate prices are by far the lowest amongst all of the major capital cities of Europe. This value for money combined with economic momentum suggest excellent long term price growth prospects, especially since international investors are pouring in.
3) Attractive tax regulation
Germany offers 100% tax relief upon resale of a property after ten years. This tax relief does not just cover capital gains, but also the rental income of buy-to-let investors. Expenses such as interest payments and management costs are also relieved from the annual renal income for tax purposes. So by being smart, real estate investors can attain a tax rate of almost 0% on their rental income.
4) Supply shortage
Berlin has a residential occupancy rate of 98.5%, which means that costly vacant periods for landlords are almost unheard of. Demand from tenants is high in part because Berlin has the lowest home ownership rate in all of German at just 20% compared to a 52% national average. This restricted supply amidst high demand is driving up prices, not least because Berlin is also increasing its population with more than 50,000 newcomers each year.
5) Big upside potential
Real estate prices in Berlin have compounded by 10% year-on-year for the last decade, and the city continues to attraction billions in new investments thanks to its highly skilled and creative population. As international real estate investors enter the Berlin market, the property investment volume has increased three-fold to €10 billion per year.
6) ‘A’ micro location
Berlin itself is an ‘A’ micro location that is ranked as one of the best cities in the world. It is known for its safety, infrastructure, parks (comprising 35% of the city), services and quality of life. Berlin is also unique in Germany as a destination for artists and entrepreneurs.