MIPIM: Berlin tops growth table but don’t forget B-cities

While Berlin’s rapid growth is expected to continue there are also rewarding investment opportunities to be had in Germany’s second cities delegates heard at Real Asset Media’s Germany Investment Opportunities briefing held during MIPIM in Cannes, France, last week.

“The fundamentals for Berlin are really, really strong and I expect the city to continue on that growth path for the foreseeable future,” said Marcus Lemli, Savills’ chief executive officer Germany and Head of Investment Europe.

Tobias Schultheiß.

He added that looking at Germany during the last 20 to 30 years Munich has seen “amazing development” . In particular, it has benefitted from the quality of life and the growth of the software sector.

“Having that growth industry, pushed Munich very much and I think Berlin has taken over this role from the growth leader in the German economy,” Lemli said. It is now building on the fact that its population is young and the quality of life there is attractive for young international professionals,” he added.

But now it is internet companies that are the new growth driver in Germany, he added.

Good opportunities in stable second cities

There are definite opportunities in the second cities according to Blackbird Real Estate managing partner Tobias Schultheiß. However, he added that these opportunities are not to buy a vacant office building, refurbish it, lease it at the maximum rent rate and sell it at an enormous price. “The opportunity in these cities is that you can get good quality buildings for good prices with stable tenants.”

Gabriel Seifert

Blackbird owns just such property and, especially in the pandemic, did not lose a cent  through companies becoming insolvent, so great is the need for space.

Not only is the income stable but the returns are much higher than in Germany’s top-seven cities.

Lemli said that theGermany’s B cities have definitely won from the move towards more home working and he added that this has also flowed through to both the development and residential markets.

“More and more people are working from home and there is a stronger need for offices in the B cities and that is really an effect of the greater use of remote working.”

Marcus Lemli.

Leipzig has been a Tier-2 city, said Gabriel Seifert , head of acquisition at Ziegert EverEstate, but the rate of residential rent growth has been comparable to Berlin.

In Berlin, his firm’s core market, although the market is highly regulated, rental growth for new build apartments “has been breathtaking”, he said.

“We’ve seen over 50% increase within the last five years. The average rental price per square metre ranges round about €20.”

There is now a marked difference between these figures and the regulated rents of existing apartments which are about €12.80 per sq m. For people wanting to move from these their choice is to pay the price of a new development or move to the suburbs, Seifert said.