Resi rents rise in Berlin but institutional interest collapses

Institutional portfolio deals have collapsed in Berlin’s residential market and while the purchase prices of individual homes have fallen owing to inflation, rising construction costs and high interest rates, there is more pressure on homes for rent and rent levels are rising sharply.

These are among the main findings of the Berlin 2024 Residential Market Report, published yesterday by Berlin Hyp and CBRE.

The portfolio transaction volume on the Berlin institutional transaction market totalled about €1.8 billion in 2023 compared to the 10-year average of €5.7 billion and €600 million less than the previous year. Developers accounted for less than €200 million, around €502 million less than in 2022.

“The general wait-and-see attitude, especially among international investors, is still noticeable despite the strong fundamental data in Berlin – with rising rents and falling vacancy rates coupled with too little new residential construction,” said Berlin Hyp chairman Sascha Klaus. “There are still differences between buyers and sellers in terms of price levels, but we are slowly seeing a convergence here.”

The research looks at the market in 2023 and examined 23,300 properties to rent and about 28,400 homes to buy including both condominiums and apartment buildings, as well as 220 new construction projects with about 34,900 apartments.

Asking rents in Berlin rose by 18.3% year-on- year to €13.60 per sq m. Rents in the higher value segment rose by 8.7% to €26.00 per sq m – slightly less than rises in previous years – lower valued homes increased 4.9% to €6.25 per sq m after a small decline in the previous year.

“The drastic decline in the number of unfurnished rental apartments on offer in Berlin is continuing in view of the strong demand for housing and the low fluctuation rate,” said CBRE managing director Michael Schlatterer.

“In addition, small private landlords are increasingly relying on furnished apartments or short-term rentals, partly in order to be able to cover the debt service of financing. This is resulting in significantly higher rents.”

Schlatterer added that the supply of available rental apartments is so limited that, for the first time, more owner-occupied apartments were on offer than apartments for rent.

One consequence of the sharp rise in rents is “a sustained trend towards moving to the surrounding area, despite prices also rising there” the report states.

In 2023, asking prices for condominiums fell slightly for the first time across all segments in Berlin, down 1.4% to €5,750 per sq m after many years of increases. While the upper market segment fell by 2% percent, the lower segment dipped 5.4%.

Nevertheless, the upper market segment remained above €10,000 per sq m for the second year in a row while asking prices for multi-family homes fell by 11.7% to €3,179 per sq m.

There are about 220 residential construction projects in Berlin and the surrounding area providing about 34,940 apartments. These projects include those in the concrete planning, development or construction phases. Only 15.1% of these apartments are being built within the S-Bahn ring.

“The proportion of additional apartments within the S-Bahn ring is continuing to fall and major new construction potential appears to be exhausted, meaning that developments are concentrating on areas outside it,” Schlatterer said. Demand for housing remains strong in the areas surrounding Berlin owing to population growth driven by migration. Few privately financed construction projects are being started. However, despite the level of demand, prices for detached and semi-detached houses have fallen almost everywhere in surrounding municipalities owing to the uncertain economic outlook and higher interest rates.

Klaus added: “New construction activity urgently needs to be stimulated again. I therefore very much welcome the current draft for the Berlin Senate’s ‘Faster Construction Act’ and hope that it will come into effect quickly.”

He added that standardisation of building regulations would help. “It is now high time to act, to simplify and speed up procedures. Energy requirements should also be standardised with a sense of proportion at a good ecological level in order to create calculable framework conditions and take social aspects into account.” But not just for Berlin, he added.