Berlin Tomorrow: Population is Growing by 5% and Housing Prices almost by 15% till 2030

As a new Study shows: Berlin’s Population is growing in the next 15 Years by nearly 5%. Furthermore Real Estate Prices will rise by almost 15%.


Photo by RaSeLaSeD – Il Pinguino/ CC BY

Berlin sets up a new record again: Nowhere else in German cities is the population growing as much as in Berlin. And with the increasing population the demand for tenements rises too. According to a new study there will live 4.75% more people in Berlin in 2030 which leads to a further increase of housing prices by 14.49% in the next 15 years.

In accordance with the study „Wohnatlas 2016 – Leben in der Stadt“ is this upgrowth mainly caused by the continuing inflow of refugees and the ongoing positive net migration towards Berlin. The appropriate experts assume that with each percent Berlin’s population is growing prices of condominiums rise by 3.5% and housing prices by 1.9%.

 Refugees‘ House-Hunting trigger off Cascade Effects

„The inflow of refugees does not directly affect housing prices but it provokes a so-called cascade effect“, the experts write: Because newcomers need mainly low-priced tenements already existing demand rises steeply which leads to an overall upward trend in rents. When rents get more expensive people invest in privat owned apartments or houses what, again, pushes the amount of needed investment capital.

Interestingly, for the above mentioned scenario the experts take an abrupt abatement of the refugee crisis for granded. Their analysis bases on the fact that till 2030 just one milion refugees will come to Germany. Just as much as in the year 2015.

Germany has stolen the U.K.’s mantle as Europe’s most attractive country for real estate investment.

It ends a two-year British reign at the top, according to an annual survey of global real-estate investors from property-broker CBRE, and is the latest sign that the U.K. real estate market is losing its shine. About 17% of investors picked Germany as the region’s top country for property investing. This compared with around 15% for the U.K., which attracted 31% of the vote last year, CBRE said.

Berlin investment

Photo by Moyan Brenn / CC BY

For the U.K. the shift is based on weaker economic growth prospects, caution ahead of Britain’s upcoming vote over its future in the European Union and years of booming property values. Germany landed the top spot in part because investors are increasingly looking more widely across the region, CBRE said. The rise in sentiment toward central and eastern Europe was particularly sharp. Investors’ search for yield may be part of the explanation,” the report said.

The dip in sentiment follows years of surging demand for U.K. property, which has been at the forefront of a global real-estate boom. The sector is perceived as a safe-haven from financial shocks, while returns have looked attractive compared with other assets like bonds. The U.K., and especially London, rose to the top of investors’ wish lists during the boom as the economic recovery took hold. For investors from Asia and the Mideast starting to venture outside their own regions, central London was often a first port of call. Last year a new record for U.K. real-estate investment volumes of GBP65.8 billion ($93.11 billion) was set, according to data-provider Real Capital Analytics. London accounted for over half of the total. But the pace of investments slowed in the second half of last year, declining 18% from the same period in 2014, according to CBRE.

Foreign investors have been retreating amid weak oil prices and growing uncertainty over the global economy. Britain’s vote in June over its EU membership is expected to further temper investment. In a February survey from CBRE, nearly three-quarters of respondents said a U.K. exit from the EU would make the country a less attractive place to invest.

“There is a general level of uncertainty, which is probably hovering over the market,” said Chris Brett, head of international capital markets U.K. at CBRE. Global economic weakness was judged to be the greatest threat to property markets in 2016, followed by domestic economic problems. The Organization for Economic Cooperation and Development last week said economic growth is set to ease in many major global economies, including the U.K., U.S. and Germany.



German housing crisis

Germany’s open-door policy has piled pressure on a housing market that is already at breaking point.

Since German chancellor Angela Merkel’s decision to open the country’s borders last August, an estimated 1.1 million refugees from Africa, Asia and the Middle East have entered Germany. This January alone, 91,671 migrants entered and the situation shows no sign of easing, with thousands crossing daily into Germany via its eastern European borders.

The first official report on the migrant crisis, published last month by the Empirica Institute, predicts the number of migrants who will have received official refugee status between 2015 and 2019 will be around 1.51 million. This will put further pressure on a housing system already at breaking point. Between 2011 and 2015, the number of people living in Germany rose by more than one million – significantly above government forecasts. In addition to overall population growth, large numbers of people have moved from the countryside to Germany’s seven core cities – one of which, Berlin, has seen its population swell by 40,000 since 2010. As a result, there is hardly any housing stock available in the major cities. Residential availability was running at less than 2% at the end of 2014 in some locations before the migrant crisis. “The residential market in Germany is now characterised by undersupply in many areas,” confirms Peter Brock, managing director at Grainger Deutschland, shortly to be part of Heitman. “Building activity in multi-family residential schemes has been low for a considerable number of years and is lagging behind demand. The major markets are very tight. Frankfurt, for example, has nearly zero availability in the residential sector.”

Brock says that with migrants also targeting the major cities, this will inevitably lead to an even greater imbalance between supply and demand. Residential rents have already risen significantly in Germany over the last four to five years. Asking rents have risen by more than 6.5% since 2012, according to the latest Savills market report, and cities with populations of more than 500,000 have seen double-digit growth. Given the current lack of available stock, rents are likely to continue rising. This may be good news for investors, but it is putting residential property out of the reach of many German families, let alone migrants.

housing demand in Germany

“We have a situation where to build multi-family houses and rent these out at an acceptable yield for an investor, the rents that need to be generated must be between €9 and €10/sq m per month, while the average German rent nationwide has historically been between €5 and €6. For a lot of urban and regional markets this is clearly not sustainable,” says Brock. The problem is compounded by the fact that although development activity has picked up, very little is targeting the affordable housing market. The prospect of that changing is slim. For one, land prices have been driven up by developers competing for space for office and industrial schemes, according to Helge Scheunemann, head of research at JLL Germany. For another, construction costs have shot up, with the introduction of new energy efficiency laws later this year expected to push them up by a further 7%. “We already have high energy standards, and this new law will put a lot of pressure on the big cities and potentially block off even more of the market,” he says.

Future need

Another reason residential development has been stifled is no one knows for sure how many new houses the country will need in the future. “This is actually the biggest problem for developers and investors,” says Scheunemann. “Nobody knows what these people [migrants] will do, so they don’t want to run the risk of developing new housing to have it sitting there empty after a couple of years.”

The Empirica Institute estimates that between 2016 and 2020, 656,000 apartments will need to be built to cope with the influx of migrants. Of this, just 43% can be provided by existing vacant flats, meaning 75,000 to 100,000 flats must be built per year. This will drive the total annual demand for new flats from 286,000 to 361,000 units, says Empirica board member Reiner Braun. With the number of migrants entering Germany growing every day, time is running out. Some initiatives are slowly being introduced to tackle the issue. “Unused sheds and office spaces are being converted into temporary accommodation to absorb the incredible number of people coming in,” says Brock. “However, this is definitely not a long-term solution.” Perhaps not, but it is better than the current accommodation migrants find themselves in. On arrival in Germany, families are directed to refugee camps where they await the official documentation that will give them the right to stay. This takes time. Some are waiting more than four months, enduring rain, snow and freezing gales at the country’s biggest refugee camp at the former World War II Tempelhof airport in southern Berlin, which houses more than 7,000 people.

Camps like this have been erected all over the country to deal with overcrowding issues. The hospitality industry has also been called into action, with the German government paying independent hotel owners €50 per day per migrant. As a result, hotel occupancy rates in Germany, which are usually around the 60%-65% mark, have risen to 90%-95%. However, migrants are afraid to move into some hotels, which are tainted by stories of unscrupulous owners failing to maintain basic hygiene standards in rooms and toilets. There is also an issue of overcrowding, with some hoteliers rumoured to be putting multiple occupants into one room. Desperate times call for desperate measures, which these clearly are. The reality is that Germany was simply not prepared for such high volumes of migrants at a time when its housing stock was already coming under increasing pressure. Now the country faces a new challenge. “Nobody knows how many migrants will decide to stay and integrate with German society,” says Matthias Pink, head of research at Savills Germany. “It’s also unclear where these migrants will be displaced and if other members of their families will join them. As a result, it is still quite difficult for the government to gauge the scale of the problem.”

What is clear is there are a growing number of people from war-torn countries such as Syria and Iraq who have risked everything to come to Germany, before making the difficult decision to journey home due to the poor conditions and the limited prospects for their future.



German Real Estate Market 2045: Residential Property will noticeable run short in Areas of High Population Density

Net migration facilitates property scarcity in urban areas and metropolises.

Pursuant to a new analysis, residential property will noticeable shorten in areas of high population density. In the long term, almost one million tenements could lack in ten major German cities and regions till 2030 thus housing prices would rise drastically. That’s the result of the study „Wohnen in Deutschland 2045“ (Live in Germany 2045) by the insurance company „Allianz“ together with the research and development company „Prognos“. Reason for this divergence is mainly the consistant net migration which primary focus on metropolises and urban reagions. This effect is additionally threngthened by increasing immigration from abroad. The study’s experts assume that Germany will, like Canada and Switzerland, increase in population in the coming years. So in 2045 there will likely live 85 million people in Germany.

Lacking tenements in the top ten regions

The Study identifies ten German regions where most tenements will be absent till 2030: Munic, Berlin, Rhine-Main-area, Stuttgart, Hamburg, Cologne, Münster, southern Upper-Rhine, Hannover and Düsseldorf. Even today, in most of these areas housing availability is scarce. Won’t these metropolitan areas raise their construction activity soon there will be a huge gab of 940.000 tenements in the next 15 years. «Housing availability is developing to slowly», project manager Tobias Koch mentions. Would the construction activity remain constant for the next 14 years there would be a lack of 173.000 tenements in Berlin.

Residential property scarcity

In addition, the ongoing trend to single-person households intensifies scarcity of residentional property. Whereas the number of German households increase by 14% in general till 2045 the number will rise by 18% just for the ten prior mentioned areas.

Structurally weak areas like Eastern Germany, North Hesse and Saarland have to face swelling difficulties: Inscrease both attractiveness of their region regarding quality of live and supply of workplaces. But what else can be done? Build and get more attractive, the authors recommend. From their perspective the real estate markets react to sluggish to shifts of demand. Particularly in the before mentioned areas where the demand for tenements stays high in the long term the construction activity must be enhanced rapidly.

Running Yield Reaches Yet Another Record

Frankfurter Börse; Umlaufrendite

Photo by Christian Barmala / CC BY

A new record has been set. The German running yield, described as the index of fixed interest securities has descended to 0.02%, a level that has never been reached before. Only days before, on February 24, 2016 the previous record low of 0.04% had made the news.

Last year already, the running yield displayed considerable fluctuations having reached 0.05% early that year before it temporarily recovered to 0.08% in mid-2015. Since this short recovery the market observed a steady decline of the interest. It remains to be seen whether this year’s leap day marks the final low point of the interest rate’s decline or whether further lows will follow.

European Bank will influence future of interest level

While this development will certainly please German Federal Minister of Finance, Wolfgang Schäuble and other debtors, savers and depositors, on the other habd, are more likely to become nervous. They will receive continuously decreasing interest on their deposits, if anything still. The coming session of the European Central Bank (EZB) in Frankfurt on March 10 will shed some light on its plans to implement measures against low inflation. This could mean a continuation of the low-interest phase.

PONS Atlantic Partners is a consulting firm based in Berlin. Two decades ago we started to focus on site selection advisory and M&A advisory within the USA. We expanded our business activity to real estate consulting and therefore founded Pons Real Estate. Our team has long experience in the American-German economic and trade relation. We know both markets and all their characteristics. Our experts bring analytical skill and specific knowledge about the financial, legal, structural, political and cultural situation in Germany and the US.

German Running Yield Dropped to Historic Low

European Central Bank

Photo by Andrea Sartorati / CC BY

At 0.04%, the German running yield reached a new record low on February 24, 2016. The last time the German running yield reached a historic low was in April, 2015 with 0.05% lasting for only three days. After a short boost to 0.08% in July, 2015 the descent continued constantly and finally culminated in the historic all-time low.

Low Running Yield a Reason to Act

Depositors receive even less interests than before. To find alternative investment strategies is complicated but possible, depending on your personal preferences. The German real estate market offers a wide range of investment opportunities and the German capital, Berlin, is of high interest to national and international investors. Thanks to an ongoing positive net migration and 30 million visitors per year the German real estate market is booming and promises attractive returns.

The running yield is the annual income on an investment divided by its current market value. Running yield is a calculation that takes the income from dividends (for stocks) or coupons (for bonds) and divides the income by the market price of the security; the value is expressed as a percentage. A security’s running yield is sometimes used by investors to make buying and selling decisions and investors can use running yields to compare the expected lifetime income yield of various securities.

PONS Atlantic Partners is a consulting firm based in Berlin. Two decades ago we started to focus on site selection advisory and M&A advisory within the USA. We expanded our business activity to real estate consulting and therefore founded Pons Real Estate. Our team has long experience in the American-German economic and trade relation. We know both markets and all their characteristics. Our experts bring analytical skill and specific knowledge about the financial, legal, structural, political and cultural situation in Germany and the US.