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As property booms, Berlin is a victim of its own success

Beautiful Berlin skyline
Remember the cheap years. Source: Fotolia

“Berlin, Berlin, we’re going to Berlin,” the popular German soccer song goes, alluding to an annual championship held in the city. The tune could just as easily be an ode to runaway expansion: Tens of thousands of people move to the German capital every year, stretching a once-relaxed housing market to the breaking point.

What a difference a couple of decades can make. During the Cold War, Berlin was isolated behind the Iron Curtain, with little in the way of industry, heavily dependent on federal subsidies to survive. Economic prospects remained gloomy after the Berlin Wall crumbled in 1989, and the city’s population shrank through the early 2000s. Both housing and land were plentiful and cheap.

Remains of that era are fading fast, however. Take Europacity, a mixed-use quarter being created from wasteland north of Berlin’s main train station. Due for completion in 2023, the 61 hectare (0.24 square mile) tract will be home to 3,000 apartments and businesses and 16,500 jobs in what was once the death strip between East and West Berlin. But Berlin’s lower-income residents are unlikely to live there. Two buildings typical of the area are the Kunstcampus, a sleek hive of 120 luxury apartments overlooking a canal, or the Fritz Tower, which has 266 serviced microapartments intended for short-term executive leases.

Berlin's districts
Berlin's districts. Source: Wikimedia Commons

So far, the surging prices have failed to deter investors, often foreigners or Germans seeking to pick up a second home in Berlin. The costs, brokers argue, are still reasonable compared to London or New York. RBB, a Berlin regional broadcaster, calculated that prices of inner-city building plots are as much as 10 times higher than a decade ago. In painfully trendy Prenzlauer Berg, part of the Pankow district, building land on one popular street soared from €460 per square meter in 2008 to €5,500 in 2018. Last year, prices for condos in the city rose by nearly 16 percent to an average €3,400 per square meter. That’s not that far below the likes of rich Munich or Stuttgart, where condominiums can command €4,000 per square meter.

On average, 45,000 people a year have moved to Berlin since 2011, putting intense upward pressure on real-estate prices. New supply isn’t even close to catching up with demand, particularly in central locations. Last year, 12,814 new apartments were built in Berlin’s 12 districts — nearly 10 percent more than in 2016 but still far from enough. City planners estimate that 20,000 new apartments would have to be built each year to meet rising demand, at least until 2021.

Berlin rents aren’t rising as fast as property prices, but the increase is still breathtaking. In the past decade, the average rent on new leases has increased by 75 percent. At €11.97 per square meter, Berlin is Germany’s fourth-most-expensive big city for tenants, behind Stuttgart (€13.77), Frankfurt (€14.03) and Munich (€17.66), according to second-quarter 2018 figures from Empirica.

luxury apartments in berlin
Luxury living in the death strip. Source: Imago

“In contrast to Munich or Frankfurt, Berlin is one big playground for building contractors and investors,” said Jacopo Mingazzini, boss of real-estate firm Accentro. “You only have to get planning approval.” He recalls how a decade ago, Berlin officials were contemplating tearing down apartments to stem a potential glut of rentals. “Since then, everything has been turned upside-down,” Mr. Mingazzini notes.

As central Berlin and trendy districts such as Friedrichshain-Kreuzberg and Neukölln fill up, some tenants and buyers are giving stuffy, well-to-do western districts such as Charlottenburg-Wilmersdorf a second look. But more and more wannabe residents are forced to try their luck on the outskirts, say, in Marzahn-Hellersdorf deep in formerly communist East Berlin, or sleepy Spandau to the northwest.

One unlikely hot spot is Grünau, a former industrial town in the fast-growing southeast district of Treptow-Köpenick. Situated on a leafy shore of the Dahme River, shunned by developers until a few years ago, Grünau is awash in new housing for commuters. Michael Fröhlich, a manager at Austrian developer Buwog, remembers being “sneered at” when buying real estate for a project there in 2012. Now Grünau is booming, despite the 45-minute trip into central Berlin.

To help stanch the housing crisis, local officials are weighing radical measures. Last week, Berlin Mayor Michael Müller said the capital was considering ways to prevent foreign real-estate investors from snapping up properties, inspired by a new law in New Zealand aiming to slow the rise in house prices. Mr. Müller has floated other ideas, including a land tax to skim off speculative profits and giving the municipality first option to buy federally owned land. Many of these properties are unused, a legacy of the Cold War era. Such notions recall the conundrum of highways: No matter how many you build, they always fill up.

Silke Kersting is a correspondent for Handelsblatt in Berlin. Jeremy Gray is an editor for Handelsblatt Global. Staff from Tagesspiegel contributed to this article. To contact the authors: kersting@handelsblatt.com and j.gray@handelsblattgroup.com

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