Why Berlin’s office market is attracting global investors
Investors from around the world are ploughing increased amounts of capital into office buildings across the German city.
Foreign investment into Berlin’s office market increased 160 percent in the first half of the year, driven by the city’s long-term growth prospects.
The German capital received a significant increase in global capital in the first half of the year with around 70 percent of the total US$5 billion invested originating from outside Germany.
“This is global capital looking at Berlin, comparing it to other opportunities around the world and believing in the city’s overall growth prospects,” says Pranav Sethuraman, JLL global research analyst.
Despite tight yields of as low as three percent, global heavyweight managers, as well as European investors, are ploughing capital into Berlin.
BlackRock invested €116 million in an office project in the city’s Kreuzberg district, while Google bought an office for its own use in the city centre. Cording Capital and Meyer Bergman have also all invested in Berlin this year, joining the likes of Blackstone and Italy’s Generali/Poste Vita joint venture.
Capital from a range of sources is looking for opportunities in the city, says Rüdiger Thräne, regional manager at JLL Berlin. But finding product to satisfy investment demand – particularly for large, single assets – is proving to be a challenge.
“Most investors looking at Berlin are seeking core assets in prime locations. However, there is opportunity in so-called ‘B’ areas a little off the beaten track,” he says, pointing to areas such as Spandau, where a major new industrial and technology hub is being developed by Siemens.
With Berlin having already surpassed last year’s total cross-border investment volume, the city’s ability to finish the year in a similar fashion will depend on the availability of stock.
Much of the supply shortage is down to the city’s booming population, which is expected to rise 7.5 percent by 2030 to total 3.8 million.
“The demographics are promising, with employment opportunities for young professionals in both major firms and start-ups,” says Sethuraman. “Supply simply can’t keep up with demand.”
And while investors are struggling to find product, the same can also be said for companies looking for office space, says Thräne, pointing to vacancy of just one percent in the German capital. “There’s around 900,000 sqm of office space in the pipeline between now and 2020, but half of that has already been pre-let. Choice is limited.”
With prime rents having risen from 22 to 35 euros per sqm since 2013, there is expectation that rents will rise by more than 10 percent in the coming years.
Major employers in the ascendancy are boosting Berlin’s appeal to young professionals, Thräne explains.
“Berlin is a strong headquarter base for a growing number of new firms,” he says, adding that it wasn’t so long ago that Berlin was playing catch up with other German cities.
As well as blue-chip, domestic names such as Volkswagen and Lufthansa, Berlin has also drawn in Google, Nike and Sony Music, while newcomers such as online bank N26 and Germany’s online fashion retailer Zalando, expand their businesses.
“Opportunities may be increasingly hard to find in the coming months,” says Sethuraman. “But global investors will continue to favor Berlin for its long-term credentials.”