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Berlin's Surging Real Estate Market Shows No Sign of Slowing

Berlin has always been regarded as one of the cosmopolitan capitals of Europe, both a cultural center and architectural showplace that has attracted scores of visitors. But increasingly, native Berliners are finding their city becoming a more long-term destination. The combination of a booming economy, a growing startup scene and a reputation as a safe spot for international real estate investment has helped push up property values and led to a huge influx of new residents and investment. According to Roman Heidrich, who leads the Berlin residential valuation team at JLL, a global real estate firm, 175,000 people have moved to Berlin since 2010, and in the next 15 years, another 450,000 are expected to follow them. A city that's been a renter's stronghold for decades—less than 20 percent of locals owned their home five years ago—is suddenly finding the market moving very, very fast: according to a JLL report, €17.5 billion ($18.8 million) in residential property was traded in the first half of 2015, a record for Berlin, and condo prices rose 9.1 percent. And according to many analysts, the engine of growth shows no sign of easing up.

"Berlin's economy is going through a cycle of sustainable growth, and reported positive growth even in 2009, the year after the Lehman bankruptcy," says Nikolaus Ziegert, Managing Partner of Ziegert Bank und Immobilienconsulting. "The same people who are saying Berlin is overpriced will tell you tomorrow: 'If only we had bought yesterday.'"

Rental and real estate prices have been a hot topic for years, enough so that the government has recently stepped in with a series of rent control measures. But despite increased wariness over rising prices, demographic and economic trends suggest real estate values will continue to move in a steady, upward direction.

Many factors have supported Berlin's boom. The city's nascent startup industry, which can count firms such as Soundcloud, prefers an international location without the stratospheric prices of London. It's a sentiment shared by many foreign investors, who can find cheaper prices here than cities such as Paris, Moscow or Zurich, and have helped rev up the market (the average cost of a condo in Berlin, €9,500 per sq metre, is less than a third of the average in London, €33,250). It helps that Berlin real estate, depressed by a glut of subsidy-fueled apartment building in the '90s and a price dip during the recession, has only recently picked up. This has pushed apartment prices up €9.05 per square meter, a 5 percent increase, and condo prices up €3,020 per square meter, a 9.1 percent jump, from last year.

"Prices have increased a lot, but they're still lower than those in other major cities, because they started from such a low level" says Julius Stinauer, a JLL director in Berlin. "Lots of cities in Germany, such as Munich and Hamburg, are actually more expensive than Berlin. There's just a lot of potential in the city, especially with condos."

With foreigners investing much more heavily in the city, especially in the last few years, the market has reacted as expected to a high demand, low vacany situation. Whereas a decade ago, according to Stinauer, there was a vacancy rate of 7 to 8 percent, there's almost none today. While new construction has ramped up, from roughly 4,000 units last year to 8,000 this year, that's barely making a dent in pent-up demand.

Hot Neighborhoods:
For investors looking to get into the market, the city has its share of safer bets and edgier areas that may lead to bigger payoffs. Stinauer points to Neukölln (a once-gritty, now bohemian West Berlin neighborhood the blew up after the adjacent Tempelhof airport closed in 2008), Wedding (a working class area near Mitte now home to artists and creatives) and Kreuzeberg (a longtime hipster neighborhood known for its galleries and nightlife), places "on the edge" of being gentrified that have seen increasing development over the last couple of years.

According to Ashley McEvers of Willis Allen Real Estate, those looking strictly for investment purposes should focus on Mitte, the city's central borough, and Prenzlauer Berg (an upscale part of what was once East Berlin), perennially in-demand areas for foreigners currently filled with new construction.

For more up-and-coming and gentrifying areas, she also suggests looking at the area around the new Mercedes Benz arena in Friedrichshain, a former East Berlin neighborhood along the grand Karl-Marx-Allee. McEvers says the area should benefit from 200 million Euros in investment as office space, retail and restaurant start sprout up in the small area adjacent to the River Spree.

Another pick would be Charlottenburg-Wilmersdorf.

"Once the city center of Berlin west during the times of the divided Germany, it's seeing a renaissance its attractiveness," says McEvers. "As a grown neighborhood with restaurants and shops, as well as the sought-after architecture, with the turn of the century buildings and its historic flats being painstakingly restored, that neighborhood has seen increasing interest by buyers, mainly for their own use."

Developments to Watch Out For:
The city's super-charged real estate scene also has its share of big developments. Ziegert, whose firm is involved in numerous projects, supports Mitte's prominence as a hot neighborhood. Currently working on Daniel Libeskind's Sapphire project, an angular apartment building with a custom stone tile facade going up on Chausseestrasse in the north end of Mitte, he also pointed to a series of nearby developments, including Haus am Schinkelplatz (by Frankonia) and Kronprinzengärten (by Bauwert), Yoo (by Peach Property) and LUX (by Triple A/Ziegert). The recently finished Palais Varnhagen by David Chipperfield on Französische Strasse and High Park on Potsdamer Platz (set to open late 2017), also add additional high-end units to the crowded luxury market.

Stinauer points to the neighborhood under construction at Europacity, near the Berlin Central Station, as one of the most promising areas of investment. Totaling 80,000 square meters, the massive project is poised to become a new commercial and residential hub. And an even bigger development may be around the corner. The long-anticipated Berlin Brandenburg Airport, an expensive construction boondoggle that dragged on for years, may finally open in a few years, meaning the land beneath the aged, overdue-for-retirement Tegel Airport on the city's northwest side might be ripe for long-term development.

"Spandau, an area to the west of Tegel, will have a whole new identity," says Stinauer.

Advice for Foreign Buyer:
Foreigners looking to buy and invest in Berlin need to, first and foremost, understand the tax implications of overseas property, since Germany has double taxation agreements with the countries of origin of many international investors, including the United States. The country has no equivalent to the MLS, and real estate agents don't need to be licensed, so it pays to find the right agent or property service.

Ziegert also suggests buyers come to the table with plenty of hard cash, since benefitting from favorable terms of interest in Germany (1.6 percent on a ten-year loan) requires committing 50 percent equity. He adds that potential landlords looking to buy to let should aim for smaller flats, since the city has a high percentage of single-person households (50 percent), and aim for new-built flats exempt from rent control.

"The city's appreciation upside is complemented by a high security of investment," he says. "Due to the high rate of incoming migration and the sustained positive economic growth, residential prices will keep going up; we're currently aware of nothing that would indicate a market risk."

Heidrich says the best part about looking for a home or property in Berlin is the diversity.

"There's anything you want here, the party live in Kreuzberg or the family life on Prenzlauer Berg. It all depends on your living situation."

· Cold War Berlin's Utopian Cityscapes From Both Sides of the Wall [Curbed]
· A Month In, Berlin Rent Control Already Lowering Prices [Curbed]