Berlin's residential construction is stabilizing at a medium level. For the past year, Investitionsbank Berlin expects around 16,300 apartments to be completed. That would be about 1,000 units more than in the previous year. The growth is mainly fed by the so-called construction backlog of 50,000 apartments: These are therefore largely apartments that were approved several years ago, but were only now realized with a time lag. This processing would compensate for the lower number of permits in recent years, according to Andreas Tied, Head of Real Estate and Urban Development, Investitionsbank Berlin (IBB).
For the time being, however, only high-income households will benefit from the greater availability of new-build apartments. This is a key message of a press conference on new residential construction in Berlin, which was attended by Uwe Bottermann, lawyer and partner at Bottermann::Khorrami, Sascha Nöske, CEO of Strategis AG, Dr. Lars Vandrei, Head of Research Catella Investment Management, and Andeas Tied (IBB). According to the IBB, the average Berlin household can afford rents of between 12.00 euros and 12.90 euros per square metre on average, depending on the size of the household and the appropriate living space, if the monthly housing cost ratio of 30 percent of the net household income is not exceeded. However, the asking rents in privately financed new residential construction are on average 20 euros per square metre. Sascha Nöske even sees the majority of the offer at 25 euros per square metre. At over 30 euros per square metre, a significantly higher rental expense would then be required. "This limit will remain for the time being," says Nöske. "Because the income development in Berlin does not allow for more. If prices are set too high, there is a risk of longer vacancies, and this is not economical."
Rent cap is around 30 euros per square metre
Information about the affordability of rental apartments is also provided by the rental periods. Offers in the lower segment at an average of 12 euros per square metre are available for about four to five days, according to IBB. With rents averaging 19 euros per square metre, it takes about three weeks and an average of 23 euros per square metre about eight weeks to find a tenant. This information is confirmed by Sascha Nöske, who assumes an average of four viewings for a contract at rental prices between 20 and 30 euros. Beyond the S-Bahn ring, however, there could also be up to ten viewings in less attractive locations.
In addition to the location and the adequate rent level, the floor plan quality is decisive for a successful letting. "Anyone who is considering a new apartment takes a very close look at what they get for their money. Unusable areas are an absolute exclusion criterion. Nobody rents a new apartment with a long hallway just to hang a coat rack in it and put a large decorative vase at the end of it." Strategis AG also advises its customers accordingly. "Numerous projects still have potential for optimization, both in terms of space efficiency in the apartments and the mix of uses. At the moment, we only recommend commercial space where there is a clear tenant interest and not because an area may be more difficult to rent as an apartment."
The constant influx of people to Berlin, which leads to an increase of the equivalent of 10,000 to 15,000 households per year, ensures a persistently high demand for rental apartments. Young people continue to come to Berlin, especially from abroad.
New residential construction, preferably on the S-Bahn ring.
Due to the high land prices in the centre, the necessary housing construction is currently preferably taking place outside the city centre, but still within easy reach of the S-Bahn ring and with good public transport connections. One example is a project with 37 apartments that Catella Investment Management recently purchased for a fund in the Weitlingkiez in Berlin-Lichtenberg. The project, which is built according to the KfW 55 standard, has 50 percent barrier-free apartments and will be rented out this spring. Vandrei says: "The purchase of new buildings for institutional investors at 22 times the annual net cold rent still pays off. If this is no longer achieved by rent, land prices and construction costs must fall." In Berlin, as in other major German cities, acquisitions are still possible. In other cities, however, regulatory risks are lower and purchasing power is higher. In addition, Berlin as an investment location suffers from low project availability.
Election promises of the parties will make new housing even more expensive. Accordingly, the latest ideas for further regulation of Berlin's rental housing market, such as social quotas in the letting of existing buildings or profit caps for investors, are seen as problematic by market participants. "Further regulation and the possibly necessary cross-subsidization of rent-controlled apartments by market-free units will not lead to the exploitation of building permits, especially in the current market environment," says Uwe Bottermann. The current planning facilitations through the Faster Construction Act or the construction turbo, as well as the Senate's promise to speed up approvals whenever possible, would only mitigate the consequences of the regulatory efforts to a limited extent. "The price drivers in construction are not so much the interest rates for project financing as the ever-new requirements that developers and investors are confronted with."
Older project configurations, increased financing costs and the resulting longer sales periods have also been affecting market activity in the sale of new-build condominiums for some time now. "With the rise in interest rates in spring 2022, 80 percent of interested parties had disappeared overnight. A partly dysfunctional rental market and the stabilization of financing conditions are causing buyer interest to rise again. In addition, there are the aspects of asset protection, the greater selection and better service on the property market," says Sascha Nöske. "As a buyer, you are advised individually and appreciated." The challenge is that some projects initiated years ago no longer fit current customer requirements in terms of affordability and floor plan efficiency.
Such projects are now also attracting the attention of the Berlin administration, reports Uwe Bottermann. According to the Prohibition of Misappropriation Act, owners must report and justify the vacancy of living space after three months. It is then up to the authorities to determine a fine. "Depending on the assumed rent level, between 250 and 750 euros per month are currently set," says Bottermann. Especially in Mitte and Charlottenburg-Wilmersdorf, rapid processing is to be expected. The initiators are then faced with the question of whether they want to rent out temporarily or pay the fine.
