Property

Weathering the Storm

Weathering the StormThere’s not much that needs to be said about the German capital that hasn’t already been said. Berlin is one of the world’s great cities and its three million-plus residents have learnt to balance culture, politics, media, finance and science and technology with being really, really cool. Despite a gruesome 20th century history, the city has emerged as a major social influence and a vanguard with respect to living standards and diversity. The city is rife with iconic architecture and to say that German technology and innovation have become a way of life is an understatement: BMW, Mercedes Benz, Bayer, Siemens, Adidas, Nivea, Hugo Boss, Loewe, Miele, Birkenstock, Braun and Volkswagen among hundreds of others are some of the most recognisable and utilised products in the world. That’s not taking into consideration the significance of German beer traditions, Bauhaus architecture, Johannes Gutenberg and David Bowie’s Berlin trilogy.

And as of right now, it’s also one of the most powerful in the world. As much of a power player as London may be, and though most of us think the only stock exchange that counts is New York’s, the ongoing Eurozone debacle has made Berlin a major force to be reckoned with. When Berlin speaks, right now, everybody listens. Germany arguably has Europe’s strongest economy, and regardless of what agreements are forged, Germany is going to be footing the majority of the bill until the situation is righted. That puts most of the balls in its court.

That also puts it at greatest risk. The city of Berlin itself is already in a precarious situation. As much as a whopping 15 percent of its citizens are drawing state support of some sort, despite the city’s consistent growth underpinned by financial services, media and design and tourism rooted in arts and culture. The annual Berlin Film Festival alone draws 50,000 people into town for 10 days.

As of the end of 2011, property analysts like Colliers were pegging Berlin as a strong commercial investment location for 2012, and as of May that sector of Berlin’s property market was strong, totalling over €2.2 billion, with 11 percent and 23 percent of purchaser and vendors from outside Germany (respectively). Retail property was also a popular investment, with prime properties selling at yields nearing five percent. It would seem that Europe’s debt and currency woes aren’t frightening everyone away.

But does Berlin have an investment market in the traditional sense of the word, like London’s, Hong Kong’s or New York’s? The short answer would be yes. “With 3.5 million inhabitants, Berlin is the largest city in Germany. Furthermore it is the capital city and seat of government of the German Federal Republic,” explains Colliers’ head of research in Berlin, Margit Lippold. Not much rivals New York or London but Berlin is indeed its own unique entity. “Berlin ranks among the most attractive tourist locations in Germany and has an economic structure that is strongly characterised by the services industry. The capital also ranks among the most important research locations in Germany. Of course, Berlin is a big market that is in demand.”

Oddly, the pressure the Euro crisis is bringing to bear on the city isn’t nearly what most of us would expect. Media portray Germany as something of a wealthy continental grandparent that can be counted on in a financial pinch. The common perception is that this can’t be good in the long run. “In general the credit crisis has not put much pressure on Berlin’s property market. The demand and the population are still slightly rising,” notes Lippold. And Berlin’s series of so-called city centres gives investors a range of choices depending on their sector interest, which can include residential property. Despite a rocky first quarter, as of March 2012 prime residential rents in Europe rose an average of 2.2 percent.

For the immediate future Colliers expects Berlin to hold steady. Chances of massive property dumps are low and the city is in no danger of falling off the international radar. Knight Frank’s The Wealth Report 2012 put Berlin in the top ten on its list of the most important cities to affluent investors — citing criteria such as personal security and educational infrastructure — and the one-two punch of Berlin’s economic capital status and “neighbouring” Frankfurt’s position as the seat of the EU’s Central Bank will keep it that way. “As far as we can forecast Berlin is a typical market with changing investment interest every three to five years,” Lippold finishes, insisting, “No fire sales!” In English we’d just call that schadenfreude.