Residential rental prices rise in Berlin despite rent cap

Median asking rental prices in Berlin increased strongly in 2016 despite a rent cap being introduced in 2015, up 5.6% during the year, the latest figures show.

The growth was led by apartments with rents in this sector up by 15.7% although there are considerable variations depending on location, according to the housing market report from Berlin Hyp and real estate advisor CBRE.

It suggests that a rising population is having an effect on rents. Berlin’s population rose by 48,000 in 2015 and since 2005 it has increased by around 270,000 residents.

But the rent cap has kept rents below other cities in Germany such as Cologne, Hamburg, Frankfurt, Munich and Dusseldorf. In Berlin median asking rents increased to €9 per square meter per month but they are well below the highest in the country in Munich at €15.11.

‘The ongoing development of Berlin is stunning. The dynamics on the market for rental apartments and new construction projects as well as the acceleration of purchasing prices are unique in Germany,’ says Henrik Baumunk, head of residential services at CBRE in Germany.

‘However, in terms of rents and purchasing prices there is still a lot of potential in Berlin, particularly due to the ongoing population growth and at the same time moderate construction activity as well as the rising economic strength of the city,’ he added.

Population as well as economic growth are putting a strain on the market, according to Gero Bergmann, a member of the board of management at Berlin Hyp. ‘The supply is getting smaller because tenants are less willing to move in view of the decreasing supply and higher asking prices,’ he said.

The biggest growth was recorded at 17.1% in Neukölln and Marzahn-Hellersdorf also saw double digit growth with a rise of 10.2% but it has the lowest median asking rents at €6.70 per square meter per month, with asking rents being as low as €5.20 at the bottom end of the market.

The highest rents in Berlin are in Friedrichshain-Kreuzberg at €11.04 per square meter per month. The lowest growth rate was 2.7% in Charlottenburg-Wilmersdorf but in the top market segment, the district had the highest median asking rents of €17.46 per square meter.

‘One of the key highlights of this report is the sustained growth of Berlin’s residential sector. Over the past few years investors have been shifting capital in increasing amounts into Europe’s most undervalued capital city,’ said Ian Sigmund, investment associate at IP Global.

‘Whilst investment in previous years has been concentrated solely around more central locations such as Mitte, Charlottenburg and Friedrichshain, we are now seeing potential in Berlin’s outer districts,’ he pointed out.

‘Lichtenberg is a prime example of a location that has been a recipient of this investment. In 2015 it saw a meagre 3.4% capital appreciation yet a strong leap in rentals, 8.7% a key indicator for future growth. Lichtenberg’s top market segment appreciated an astonishing 29.7% over the year 2016, with much of this growth attributed to areas surrounding the Tierpark,’ he explained.

‘Looking ahead, this report solidifies the Berlin investment case with the average residential capital growth over all districts at a healthy 9.6%. With uncertainty surrounding traditional safe haven markets such as the UK and the US, Berlin remains an attractive alternative for investors in search of strong, sustainable returns,’ he added.

According to Achim Amann, director of Black Label Properties, those wishing to invest in property in Berlin should consider properties that are new build or completely refurbished to avoid the rental capping law because the new restrictions to not apply them.

He reckons that a 3% yield for buy to let investors is realistic and rent growth is expected in areas that are currently at the lower end such as Spandau, Lichtenberg and south Neukoelln.