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Friday, February 6th, 2015

Berlin on the rise: Real Estate in Germany’s capital in 2015

Trends of Berlin's real estate marketGermany has long been attractive to investors both within and outside the country as an economically stable environment. Today, this is especially true when compared to economic data from other European countries. Germany offers a favourable investment environment with low and stable interest rates. In 2015, this looks set to continue as the European Central Bank will not increase interest rates and there has been very little economic movement within the Eurozone and a relatively unchanged economic situation.

This means that generally, the German real estate market will remain strong and not change significantly over the forthcoming year. Investors will continue to direct funds towards the real estate market as it offers better yields than the money and bond markets and it is likely that there will be a move towards slightly riskier investments.

Foreign investors will continue to be attracted to the German real estate market and it is expected there will be a rise in the number of Asian investors. Foreign investors are particularly interested in the country´s capital, Berlin. According to the real estate market trend barometer by Ernst & Young it is the most popular city for residential real estate investment, followed by Frankfurt. It is the second most popular city in Europe, after London, for venture capital investment (according to an E&Y) and this dynamic is likely to continue.

However, the growth in the real estate market is expected to be fairly slow in 2015, despite a growth of 7.4% in 2014 (according to vdpresearch) as the year-on-year interest rate has continued to fall back.

Berlin is a very appealing city for start-up businesses and young, emerging industries and it continues to offer new employment opportunities and attract a lot of creative people. Relatively low rent prices compared to other cities in the country have caused a growth in the population by about 40,000 between 2013 and the middle of 2014 according to *a report issued by Berlin-Brandenburg Housing Enterprises (BBU). This has put pressure on the residential real estate market and caused a great increase in demand. Rent prices, however, have been unable to increase due to relatively low average incomes compared to other German cities.

The increase in demand will generate interest in secondary locations outside of the city, and indeed there will be more investment in these peripheral locations in the coming year. Pressure from tenants will prevent an increase in rent prices in the central locations and it is expected that prices will rise outside of the city.

This will also be true of offices as increasingly start ups are locating themselves in secondary locations. Rent prices in the city will plateau as there will be less demand for them. This will not be the case regarding retail spaces as online competitors will continue to drive retailers into more central locations in order to attract customers and generate profit. According to the report of EY, Investors should also therefore be cautious of investments in shopping malls.

Cities such as Düsseldorf and Frankfurt will not experience a significant growth in secondary locations due to their high number of vacant buildings in the city centre and therefore little increase in demand for housing, unlike Berlin which has seen a drop in the number of vacant buildings, adding to it’s appeal to investors.

The German real estate market will remain strong in 2015. There will be an increased demand for residential real estate in Berlin and other cities, but also in secondary locations outside of the city. This will also be the case for office (but not retail) spaces. There will be a rise in prices in these locations but not by a significant percentage.

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