Berlin Office Boom Beats Frankfurt as Tech Scene Woos Buyers
(Bloomberg) -- Techies tapping away on laptops in an urban-chic brick building that once overlooked the Berlin Wall are proving a bigger lure for real estate investors than London bankers fleeing Brexit.
Young creatives like those at the Factory -- a working space for staff from ride-hailing provider Uber Technologies Inc., audio-sharing platform SoundCloud Ltd. and customer-service software firm Zendesk Inc. -- are vying with bureaucrats and lobbyists for offices in the German capital. With vacancy rates almost non-existent, Berlin has surpassed Frankfurt as the country’s hottest market.
Last year, investors spent more on commercial real estate in the city than anywhere else in Germany, overtaking the financial center of Frankfurt. The surging demand has caused the purchase price for office space in Berlin to almost triple to 5,200 euros ($6,400) a square meter in the last five years, cementing the city’s turnaround from a backwater of abandoned buildings to one of Europe’s most sought-after locations.
“The influx of young people has helped change the city’s image,” said Helge Scheunemann, head of German research at Jones Lang LaSalle Inc. Berlin’s emergence as a hotbed for tech startups has given the German capital’s property market a shot in the arm, piquing investor interest, he said.
Singapore’s sovereign wealth fund is the latest to target Berlin’s commercial real estate market. GIC Pte formed a partnership with Caleus Capital Investors, a local company that specializes in buying properties that need refurbishing. Its projects include TechnoCampus Berlin, which transformed aging industrial facilities in the Siemensstadt neighborhood into office space.
“For us, Berlin is Germany’s most attractive property market,” said Massimo Massih, a managing partner at Caleus. “We see the positive trend continuing,” thanks to the city’s vibrant tech and startup scene. GIC declined to elaborate on the venture.
The amount of money invested in Berlin offices and other commercial properties climbed 46 percent to almost 8 billion euros last year, according to data compiled by BNP Paribas Real Estate. That beat the 12 percent increase in Frankfurt to 7.5 billion euros even as the city prepares for the arrival of thousands of London-based bankers because of the U.K.’s exit from the European Union.
The biggest single deal in Berlin last year was the 1.1 billion-euro sale of Sony Center, an office and entertainment complex with tenants including Facebook Inc. The property is part of a group of buildings that were constructed on what used to be no-man’s land between east and west Berlin.
The surge in Berlin real estate prices served as an opportunity for Axel Springer SE. The German publishing giant, which built its high-rise headquarters directly adjacent to the Berlin Wall in the early 1960s to protest the city’s division, sold two properties for a total of 755 million euros last year. The company, which has transformed itself from an old-school newspaper printer into a digital media conglomerate, will move into one of the sites when it’s completed in December 2019.
Buoyed by the influx of new workers, Berlin’s office vacancy rate fell to just 2 percent last year from 5 percent in 2013, Savills Plc estimates. That helped push up rents to an average of 19.20 euros per square meter from 12.30 euros during that period, according to the broker.
The expansion of Berlin’s tech industry shows no sign of abating. Online fashion retailer Zalando SE hired architecture firm Henn to build a series of office buildings on the banks of the Spree river. Scheduled to be completed this year, the complex will add to a group of properties in the Friedrichshain district dubbed Zalando City that will have enough space for about 6,000 workers.
Israeli co-working company Mindspace will open its third location in Berlin this month, a five-story building on Kreuzberg’s Skalitzer Strasse. The owners of the Factory have also added a second site in the same trendy Berlin district. The former industrial building, which used to be home to dozens of artists, is now a “club for startups,” complete with a meditation room, cinema and “Makers Lab.”
“While prices have increased, Germany still seems relatively attractive compared with other global hot spots,” Scheunemann said. Still, “the lack of available space -- for both renting and buying -- limits the market’s potential, and we shouldn’t necessarily expect any records to be set this year.”
©2018 Bloomberg L.P.