Market Report Residential Investment Berlin 2023: Property prices and locations at a glance

Transaction figures increase in the second quarter of 2023 - price adjustment process largely completed

The Berlin market for residential and commercial properties (WGH) was characterised by restraint in 2022, especially from the second half of the year. At €3.6bn, the total transaction volume in Berlin in 2022 was around a third lower than the five-year average (€5.6bn). There were also significantly fewer package sales, which had made the previous year 2021 a record year (2021: €7.5bn).

"In particular, the interest rate hikes by the European Central Bank led to a great deal of restraint last year, especially among institutional investors," is how Benjamin Rogmans, Managing Director and Head of Investment Residential and Commercial Properties at Engel & Völkers Commercial Berlin, classifies the market.

Market recovery in Berlin in the second quarter of 2023

At the beginning of 2023, the trend of low transaction volumes on the Berlin residential and commercial property market had still continued. In the second quarter of 2023, however, transactions increased by around 32 per cent to 141 transactions (Q1/2023: 107). The transaction volume increased by around 69 per cent to €724.6 million (Q1/2023: €429.1 million).

"The figures for Q2/2023 confirm our assessment that the price adjustment process in Berlin's WGH market is largely complete. Even though the result in Q2 was still below the value of the previous year, we notice that there is significantly more movement in the market again. Prices stabilised in Q2 2023, and the average price per square metre we achieved is currently 2,576 EUR/m2," says Rogmans, assessing the past quarter. The average yield in Q2 was 3.8 per cent, the factor 24 to 25 times the annual net cold rent.

The hidden champion among the transaction markets

"While a subdued mood continues to prevail in the primarily institutional markets and in large parts of the condominium market, more and more investors see Berlin residential and commercial buildings as a very good time to invest. If you like, this submarket is the hidden champion among the transaction markets right now," says Rogmans. "We are observing that not only equity-rich private buyers and family offices continue to be active on the market at the moment. Institutional players are also increasingly investing in Berlin residential and commercial properties again."

According to the managing director, this can be explained by the fact that prices in Berlin have fallen by 25 to 30% compared to their peak in 2021/2022, which means that capital city property can currently be purchased again for 2,000 to 2,500 EUR/m² or even less, depending on the location. At the same time, the lower prices and the high pressure on rents are having a doubly positive effect on yields. The attractive ratio of capital values to current construction costs is also an argument for many buyers, while the low level of new construction activity and the deficit of residential space make rentability in the capital almost risk-free.

Another significant development in the market is rooted in the Building Energy Act and the general sensitivity to the issue of climate protection. Energy aspects are becoming increasingly important overall. "Buyers in the residential and commercial building sector have recently been looking more critically at the ESG compatibility of properties, and rightly so. With increased energy prices, especially the energy envelope of a building as well as the installed heating system are a central element in sales negotiations," Rogmans adds.

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For many property owners, ESG issues and the associated challenges will play an increasingly important role in the coming years, which many private players are unwilling to face. This is one of the reasons why the supply of properties on the market is currently comparatively high and will probably remain so for the foreseeable future. However, we consider the price corrections of the past months to be largely completed.

Our team is always available to answer any questions you may have about residential and commercial properties. We look forward to hearing from you.