Housing Market Report Berlin 2020

Berlin polarises like no other city. Nevertheless - or precisely because of this - it is still a magnet for many people from  all over the world. The influx into the metropolis is unbroken and there is a lot going on in Berlin’s economy: Tesla is coming, the BER Airport will (hopefully) soon start operating, and Siemensstadt 2.0 will open up new possibilities. Also, relocation for the entire federal government from Bonn to Berlin is repeatedly being discussed. All this affects the Berlin housing market that has been tense for years.

Housing Market Report Berlin 2020

An outcry swept across the country when Berlin announced the implementation of a rent cap. According to the tenor of the real estate industry, the rent cap is expropriation, investments are on hold, and there will be a hail of bankruptcies in the real estate industry. That being said, many tenants and people looking for accommodation, who perceive the increasing housing prices as a threat, welcomed the initiative. In order to shed some light in the effects of the rent cap announcement in the Berlin housing market, we have postponed the publication date of the Housing Markt Report. Articles on the rent cap and other recent topics regarding the Berlin housing market can be found, in the familiar way, in our small-scale analyses.

The report is available directly from the site of BerlinHyp:

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Housing Market Report Berlin 2020

Unofficial Free English Translation of the Rent Cap / Rent Freeze "Mietendeckel" Law as Published

This document is an unofficial translation of the Berlin Rent Cap / Rent Freeze Law known by the name “Mietendeckel” and it’s official title

Gesetz zur Neuregelung gesetzlicher Vorschriften zur Mietenbegrenzung 

It was published on the Journal of Laws and Ordinances for the State of Berlin on 22 February 2020 and came into force on the following day 23 February 2019.

This date is important to keep in mind when reading the text because it makes it much easier to understand when exchanging the phrase “date of entry into force” by the actual date.

Another phrase is “the effective date” which is the date the Berlin Senate announced the plan of the “Mietendeckel” law, it is 18 June 2019. Replacing the phrase by the date again makes it easier to understand.

I wanted to stay as close to the original text as possible to not obstruct the comparison of the language versions.

This translation has no official character and is free for personal use only. It does not constitute by any means legal advice in any form. The purpose is for non-German speakers to get an understanding of the content of the law and draw conclusions regarding actions to be taken and questions to be asked.

There is a tight timeline and most of the actions have to be taken as an initiative by the landlord. The first action is due by 23 April and the next one 23 November 2020.x

You're welcome to try Google-Translate ...,

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Unofficial Free English Translation of the Rent Cap / Rent Freeze "Mietendeckel" Law as Published

The Berlin Rent Cap, Rent Freeze, Mietendeckel Will Come Into Force On 23.02.2020

The Berlin City Government has worked over-time to ensure that there will be no rentals next weekend under the old legal conditions. The office for Urban Development has announce that the Rent Act "Mietendeckel" will be published in the Journal of Laws and Ordinances for the State of Berlin on 22.02.2020 and thus will come into force on the next day,

23. February 2020.

It will apply retroactively to the status quo as of 18. June 2019 when the Berlin Senate approved the key elements of a new Berlin law on residential rents, including the so-called "Mietendeckel", a combination of rent freeze and rent cap as its main features.

via GIPHY
There is a line of dates to keep in mind and take action upon:

31.12.2013

01.01.2014

18.06.2019

23.02.2020

23.04.2020 Your next action date.

23.11.2020

22.02.2025 

If you are a landlord in Berlin, owning a rental apartment older than 01.01.2014 you should be setting up your timeline, project plan and checklist to avoid trouble. In many cases you could actually get fined accepting a rent at more than 120 % of the table applicable to your property. The maximum is set at Euro 500,000.

We have installed a Newsletter for landlords affected by the "Mietendeckel" for support with these tools for their apartments.

Here is the opportunity for signing up to this "Mietendeckel" Newsletter.

Don't miss the opportunity.

The Berlin Rent Cap, Rent Freeze, Mietendeckel Will Come Into Force On 23.02.2020

Mietendeckel: Should There Be A Reserve Clause In Rental Contracts After The Rent Cap - Rent Freeze Goes Into Effect?

The Mietendeckel Rent Act was challenged since the vote in the Berlin City Parliament (Abgeordnetenhaus) on January 30, 2020. On one side for formal constitutional grounds, the federal government is stating that the act passed is not within the competence of any state but a federal domaine and therefore will challenge it at the federal constitutional court in Karlsruhe. On the other side, it is challenged on its content supposedly being unconstitutional. This could also be filed at the Berlin constitutional court. Various property owners and associations are lined up.
The first attempt for an injunction has already been rejected by the federal constitutional court because it was too early out of the stable as the parliamentary process is not completed yet and in theory, changes could still be made in a third reading – which is not planned.
But I don’t want to bore you with the legal discussion.

The main issue at this point:

What should I write into my rental contracts, until there is clarity on the constitutionality of the Rent Act?

Bild von Andreas Breitling pixabay.com

The Rent Act will enter into force in the near future and any landlord will have to stick to the limits set in its various clauses otherwise risking a lawsuit with the new tenant and fines from the authorities.
As an example let’s say that going by the old rules you could rent your apartment for 1,600 EURO and going by the new rules you have to rent it for 1,300. Should the Rent Act be deemed unconstitutional, you have a valid contract at 1.300 and there is no way the Berlin Senate is going to pass a law stating that this is unfair and the tenant has to accept the contract to be raised to 1,600 – right? So what can be done? You don’t know how long the legal clarification is going to take, at best the case will be heard at the beginning of next year. You don’t really want to leave the apartment empty without rent and it would be unlawful as well.
Should there be a reserve clause in new rental contracts in case the "Mietendeckel" Rent Act is deemed unconstitutional in all or in part?
By no means, the following constitutes legal advice and replaces a discussion with a solicitor which would consider all the aspects of the specific situation. That said here are some thoughts for that discussion.
For such a clause there are two differentiation:

1. An adjustment clause which becomes effective for the moment the Rent Act is ruled unconstitutional;
2. A retroactive clause which takes effect from the day the contract is signed and entitles the landlord to demand payments going back to the first day of the contract.

• For both, there is the question of the calculation of the security deposit (Kaution), should that be adjusted as well as it is limited to there months’ net rent?

Option one seems to be legally the safer choice as it does not stretch the interpretation of the Civil Code as much. (For a discussion with your solicitor: 558b I BGB, 558b IV BGB, 560 II 2 BGB)
Reminder: For any contracts that are signed between now and the day of the publication of the Rent Act, the rent freeze of 18 June 2019 does not apply, just keep in mind the ren cap table and the 20% it can be exceeded when signing a contract now.

As the discussion and information all around the "Mietendeckel" Rent Act will certainly continue over the next months we will provide updates and insights in the handling of the situation from the point of view of a landlord.

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Mietendeckel: Should There Be A Reserve Clause In Rental Contracts After The Rent Cap - Rent Freeze Goes Into Effect?

Berlin "Mietendeckel" Is A Rent Freeze And A Rent Cap - What Happens When?

The now worldwide infamous "Mietendeckel" under observation by many big cities with housing issues has various aspects to it coming into effect at different times. There is also a differentiation between re-letting and existing contracts. I will give the collection of regulations some structure, later on adding a timeline to it.

	Rent Freeze	Rent Cap
Re-Renting	Rent on 18 June 2019 maximum but possibly restricted by the rent cap table	Rent Cap Table for any contract after the publication date of the law in the Journal of Laws and Ordinances for the State of Berlin Amtsblatt 1)
Existing Contracts	Rent on 18 June 2019 maximum but possibly restricted by the rent cap table. The landlord must actively inform the tenant about the “correct” rent defined by either the date above of the rent cap, whichever is lower. 2)	The rent cap requires a rent reduction by the landlord if the current rent exceeds the rent derived from the cap table by >20%. This action has to happen 9 months after the publication. 3)

1) Before the publication, there is no actual restriction except that rents exceeding the cap table by more than 20% will have to be reduced later.
2) As of 1 January 2022, the rent cap table will be subject to an annual review based on the percentage inflation determined by the Federal Statistics Office as of 31 December of the previous year but limited to 1.3%. The Senate department responsible for housing must define the relevant percentage by way of a legal order.
3) For more details about the cap table see https://germanproperties.blogspot.com/2020/01/the-berlin-rent-cap-mietendeckel-is.html

Applying the cap table and assuming the highest possible value of 9,80 €/m²/month with 0,74 € for a good location and 1,00 € bonus for top equipment and being completed between 2003 and 2013  your top rent is 11,54. Add 20% before it is deemed excessive by the "Mietendeckel" you end up at

13,85 €/m²/month. This is the Maximum!

It does not matter, whether the apartment is furnished or not, if it is older than 2014 this is the maximum rent you can possibly have. There is a time-line to be observed. I will publish a separate post on this subject. One very short time-line applies to current vacancies. For details on this matter please see https://germanproperties.blogspot.com/2020/02/action-required-you-can-optimize-your.html urgently.

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Berlin "Mietendeckel" Is A Rent Freeze And A Rent Cap - What Happens When?

Action Required - You Can Optimize Your Freeze Rent in the "Mietendeckel"

If you own in apartment building or apartment in Berlin completed before 2014 and currently have a vacancy, Swift action is advisable. The difference is 20% of the prospective net rent.

If residential space is or was re-let after the effective date 18 June 2019 and the lease continues to apply upon the Rent Act taking effect, the newly agreed rent will be relevant for the rent freeze. Thus, in such cases too, a market rent may be agreed before the Rent Act takes effect without the risk of the agreement being retroactively deemed invalid and the landlord being required to return any excess rent. At the same time, the tenant may, within nine months of the law taking effect, demand that the rent be reduced to the permitted cap (see The Berlin Rent Cap - "Mietendeckel" is here. What Do You Have To Do?)

In short: You can rent your currently vacant apartment at 19% above the cap table and that will be your freeze rent going forward, unless you re rent again within the next five years.

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To recap the latest main events:

The Berlin city parliament voted on Thursday, January 30, 2020, to pass the rent cap “Mietendeckel” draft into law. It will most likely come into effect at the beginning of March, possibly as early as the end of February when officially published.
This will trigger numerous deadlines for actions required to be taken by the landlord.
The answer to a much asked question:
Yes it does apply to furnished apartments completed before 2014.
We are offering a newsletter, starting with a summary and interpretation of the law as it went into the parliamentary hearing. going forward, we will be providing hands-on tips on the communication and the timeline that needs to be met starting with the information needed.
Here is the opportunity for you to sign up to this free newsletter:

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Action Required - You Can Optimize Your Freeze Rent in the "Mietendeckel"

A Flood of Updates and Interpretations on The "Mietendeckel" Rent Cap To Be Expected

You are the proud owner of a residential rental property, a buy-to-let plan?

If you have not heard about it yet, you will soon from your property manager or tenant. There are already various interpretations going around and none less than the German Federal Government is planning to take the regulation to the Constitutional Court in Karlsruhe.

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To recap the latest main events:

The Berlin city parliament voted on Thursday, January 30, 2020, to pass the rent cap “Mietendeckel” draft into law. It will most likely come into effect at the beginning of March, possibly as early as the end of February when officially published.
This will trigger numerous deadlines for actions required to be taken by the landlord.
The answer to a much asked question:
Yes it does apply to furnished apartments completed before 2014.
We are offering a newsletter, starting with a summary and interpretation of the law as it went into the parliamentary hearing. going forward, we will be providing hands-on tips on the communication and the timeline that needs to be met starting with the information needed.
Here is the opportunity for you to sign up to this free newsletter:

Don't miss the opportunity.

A Flood of Updates and Interpretations on The "Mietendeckel" Rent Cap To Be Expected

Berlin Extends the Restriction on Title Splits, Division into Condos, For Another Five Years

The Berlin city government (Senat) has extended the limitations on title splits in social conservation areas by another five years. The regulation would have expired in March.

This is a map of the areas as of 30.06.2019

Soziale Erhaltungsgebiete Berlin, Stand 30.06.2019

More details about the individual areas are in our blog https://propertylocations.blogspot.com/

Legal Background

The German Building Code, Section 172, provides the option for cities like Berlin to define social conservation areas “Soziale Erhaltungsgebiete”, also known as “Milieuschutz” Gebiete. One of the measures within this regulation is the option to stop owners of apartment buildings in these areas from dividing them up into condos (“Eigentumswohnungen”) through a title split. For the other aspects see https://germanproperties.blogspot.com/2018/03/the-can-do-and-cant-do-renovating.html on this blog.

The Good News

However, there are 6 exceptions where the district office cannot deny the permit for the title split. They are listed in Section 172 (4) of the Building Code. Statistics on this matter show, that amongst the reasons, that were listed by the owner in the application for a conversion permit between March 14th, 2015 and June 30th, 2019, 92.7% of the 15,773 apartments an application for a conversion was made was based on the “voluntary commitment of the owner - sale only to tenants for a period of seven years” (sentence 3 No. 6).

Depending on the intentions of the owner or buyer, this can be an acceptable limitation.

Looking for help in your case? Please contact us, using the email address on the right.

Berlin Extends the Restriction on Title Splits, Division into Condos, For Another Five Years

Berlin Rent Cap - Mietendeckel - Actions Required Before The End of February

The Berlin city parliament voted on Thursday to pass the rent cap “Mietendeckel” draft into law. It will most likely come into effect at the beginning of March, possibly as early as the end of February when officially published.

It applies only to apartments completed before 2014! New property developments are not touched by this law.

There are three major aspects:

• A rent freeze 
• A rent reduction, where applicable
• A tenant rent refund

This article will focus on the rent freeze, the expected impact on the owner and the preparations to be made as the law applies with regard to landlords.

We assume that most of the discussions will initially be with tenants who received a rent increase after the cut-off date of June 18, 2019. Once the law comes into force, it can be checked whether there are any claims for recovery of the increased rent. Incidentally, this also applies to graduated rents (Staffelmiete) that have increased during this period.

The law stipulates that tenants can only request a reduction in rent nine months after the law comes into force. Any claims must be made by the tenants directly, the district offices (Bezirksamt) however may continue to take all measures necessary to enforce the law. This includes, for example, providing tenants with information about the legally permissible rent for their apartment.

However, landlords who have signed a new lease after the cut-off date and before the law comes into effect (end of February or beginning of March) can rest easy. According to a recent clarification in the draft law, this new contract rent will stand. Simple reimbursement of rent that has been paid too much is not owed.
Any rental contract signed between now and the date the law goes into effect is your “freeze rent”. However, the following also applies here: If the rent is inadmissibly high (more the 20% above the rent cap "Mietendeckel" table), a reduction can be requested under the terms of the new legislation.

Actions to take:

Get as many rentals of vacant apartments done by the end of February as possible, but keep in mind the 20% rent cap. More on this specific aspect coming up. 

This is a time critical issue, we can provide support in setting up your action plan and its execution. Contact us via the email address on the right.

Berlin Rent Cap - Mietendeckel - Actions Required Before The End of February

The Berlin Rent Cap - "Mietendeckel" is here. What Do You Have To Do?

Immediately after the law is published, probably in mid-February, a rent freeze applies as the first stage. The key date for this was June 18, 2019. Landlords are then no longer allowed to charge a rent that is above the value at that time. This rent freeze applies at least until January 2022.

Then, nine months later stage two, the most controversial section of the law follows with a rule that has never existed before: The Senate has established a rent table with prices that are based on the age group and fit out standard.

There are also surcharges: one euro for "modern equipment", for example with a fitted kitchen and high-quality flooring, and "location surcharges", a maximum of 0.74 euros per square meter in good locations. Including these surcharges, the absolute maximum price of a net rent in Berlin for a period of five years will be 11.54 euros - in this case for houses built between 2003 and 2013.

When the rent is 20% or more above the applicable table value the landlord has to take the initiative to reduce it.

What to do next?

If your property was completed 2014 or later - have a cup of tea and watch.

If your property is older, there are several things you have to comply with and they all require the landlord to become active or risk fines.

18 June 2019

This is the magic date of the rent freeze. When you are renting now, you are not allowed to exceed the rent of your property on that day. You are not even allowed to accept more if the tenant offers it (which is not unlikely in the current market situation). You would ave a long term legal risk because it is illegal.

Most likely in October 2020 you have to actively adjust your rent according to the table above with bonuses and reductions based on standard (e.g. fitted kitchen) or location, much like the rent table process already applied.

In a new post coming up we will explain in detail which steps a landlord in Berlin with residential apartments older than 2014 will have to take.

If you don't want to miss the updates, subscribe to this blog here on the right of the page.

The Berlin Rent Cap - "Mietendeckel" is here. What Do You Have To Do?

Co-living - Currently One of the Most Promising Ways to Invest in Property

There are obviously many ways to invest in Real Estate. The Forbes Real Estate Council has looked at the current market situation and identified four trends that can be taken advantage of: Invest in a digital REIT, build a tiny home in your backyard, Angel invest in a Proptech startup or purchase a property for co-living.

Purchase a Property for Co-living.

I would like to dig into this option:

The Co-living movement is very much a reaction to the intensifying urbanisation and workplace nomads who can perform their job almost anywhere with internet access. Another driver is the ongoing price increase in urban areas around the world. Bigger units are hardly affordable, even for tenants with relatively high income.

Photo by Aw Creative on Unsplash

Investors are buying larger units with more than two or three bedrooms and rent the single rooms individually with shared, well equipped kitchen, bathrooms and lounge/living room. To meet the needs of the mobile generation most likely attracted to this form of living, certain standards have to be met: Fast WiFi, comfortable beds, security. A smart solution for laundry and responsive service in case of problems are a MUST.

On the financial side all utilities including e.g. electricity and TV-license have to be factored into the rent as they are key factors for mobility.

A set-up like this will command a much higher rent and, despite the inclusion of ancillary costs, a much better result than renting the entire unit to one household.

There are companies trying to offer just the shell room and will have some initial success in very tight markets but they will lose the tenants to more convenient set-ups as the competition is growing.

"It’s uncertain how large of a renter audience will be interested in this dorm-like life, but it’s gaining traction. Similar to the tiny homes, be sure to look into local zoning rules before purchasing a property." (Forbes Real Estate Council)

Co-living - Currently One of the Most Promising Ways to Invest in Property

Construction and Repair Cost Increase In Germany

Construction costs for apartments and offices increased by 4.1%

According to the Federal Statistical Office (Destatis) prices for the construction of conventionally manufactured residential buildings in Germany in May were 4.1% higher than a year before. This is the highest increase since November 2007 (+ 5.8%). For office buildings and for commercial buildings a price increase of 4.1% was determined. In particular, concrete construction (+5.4%) was the price driver in housing construction, while masonry (3.7%) was less expensive. Carpentry and wood construction were 4.3% more expensive than a year ago.

Photo by Fancycrave on Unsplash

The interior finishing prices increased by 3.6% and maintenance, repairs and upkeep by 3.8%.

DESTATIS Report.

Especially the maintenance and repairs bracket is relevant for property owners as in most cases they will affect the bottom line of their investment directly. 

Construction and Repair Cost Increase In Germany

The International Monetary Fund: View of the German Housing Market

Germany : 2018 Article IV Consultation – Press Release; Staff Report and Statement by the Executive Director for Germany

In summary the IMF concluded that Germany needs to keep an eye on its property market.  House prices are most overvalued in Munich, Hamburg, Hannover, and Frankfurt, and are estimated to be more than 20 percent above their fundament level on average in major German cities.

A housing valuation model using Germany’s ten largest cities and twelve European peers shows that since 2010, house prices in Munich, Hamburg, Frankfurt and Hannover have increased by 25 to 50 percent above the levels suggested by economic fundamentals. The average overvaluation gap in the 7 biggest cities was 21 percent in 2017.

Annex IX. Is There a Housing Price Bubble in Germany’s Main Cities? 

IMF Country Report Germany, Annex IX 

As most studies are based on country wide price levels a view at city-level is important as they expose a risk level that does not shown at the housing market aggregate level.

     Kajuth, Florian, Thomas A. Knetsch and Nicolas Pinkwart (2016).
     Assessing House Prices in Germany:
     Evidence from an Estimated Stock-flow Model
     using Regional Data.
     Journal of European Real Estate Research Vol. 9(3), 286–307.

IMF Country Report Germany, Annex IX 

The IMF concludes that there is no cause for an alarm yet because there is no lending boom to accompany the price boom.

The economy surprised on the upside in 2017.

The findings of the IMF Report on the general state of the German economy is headed:  IMPRESSIVE RECENT ECONOMIC PERFORMANCE. Real GDP growth picked up sharply, reaching 2.5 percent, as exports rebounded and triggered a much-awaited pickup in investment. Strong private consumption, supported by a robust labor market, was offset by a slowdown in public consumption as refugee-related expenditures stabilized. Although both exports and imports grew strongly, the contribution of net exports turned positive again. The labor market continued to tighten: even though employment grew more slowly than in previous years, reflecting diminished migrant inflows, job creation was strong enough to bring the unemployment rate to a new post-reunification low of 3.6 percent.1 In the first quarter of 2018, growth slowed to 0.3 percent (qoq), reflecting a normal correction following unusually strong growth in late 2017 and temporary factors (strikes, a particularly nasty flu outbreak, and early Easter holidays), but the labor market continued to perform strongly.

Commentary:

The Germany : 2018 Article IV Consultation – Press Release; Staff Report and Statement by the Executive Director for Germany by the IMF shows Germany as a stable investment environment in the Housing Market.

The International Monetary Fund: View of the German Housing Market

Global Cities Index Posts Weakest Property Price Growth Since 2015

Globally, urban prices are rising at their slowest rate since the third quarter of 2015. The Global Residential Cities Index, which tracks the movement in average residential prices across 150 cities worldwide, rose by 4% in the year to March 2018, down from 6.4% a year ago.
According to a new report by international real estate consultant Knight Frank, despite the global economy's strong performance, increased government activities to fight inflation in the real estate sector have slowed the price increases to some extent. While last year's report saw 12 cities with a growth of more than 20 % this years there is only one left in this bracket: the Indian city of Surat.

https://content.knightfrank.com/research/1026/documents/en/global-residential-cities-index-q1-2018-5666.pdf

Europe's growth path continues as 11 of the top 20 cities in the ranking for growth are in Europe. Previously in the top ranking Berlin (14.9%), Budapest (14.4%) and Reykjavik (11.8%) are now joined by Rotterdam (14.8%), Edinburgh (12%), Porto (11.7%) and Sofia (11.3%).

In Canada Vancouver continues to outperform with annual growth of 15.4% as tracked by the National Bank of Canada.

In the US Seattle (12.9%) continues to lead the 15 cities tracked by the index.

Southern Europe is increasingly polarised. Whilst Italian cities are well-represented at the foot of the table, Spanish and Portuguese cities are registering stronger growth. Porto, Malaga and Madrid all sit high in the rankings with annual growth of 11.7%, 10.4% and 10.3% respectively.

https://content.knightfrank.com/research/1026/documents/en/global-residential-cities-index-q1-2018-5666.pdf

The report also contains interesting insights in the bandwidth within countries which can go from + 22% to -5% within one economy.

For the full report just click on the graph or table above.

Global Cities Index Posts Weakest Property Price Growth Since 2015

German Property Finance - LTVs are Decreasing "Only" Due to Price Increase

Opinion:

A recent finance study by IRE BS Immobilienakademie states that the Loan To VAlue ration in German property financing has decreased from 65% to 61% since 2016 but "only" because of price increases. In other words, banks  don't believe that current prices represent the value of the properties they are financing so they are cutting back on their exposure.

Why is this supposed to be good news? It follows the calls form the Deutsche Bundesbank about a Property Bubble even though several demand based indicators don't support the view. Maybe if they keep it up for another 5 to 10 years, one day, they will be right.



Press release in German.

Purchase the report in German.

German Property Finance - LTVs are Decreasing "Only" Due to Price Increase

Knight Frank Active Capital Report 2018: Canada and Germany Attract Further Real Estate Investment

Knight Frank Report: Active Capital - 2018.

Active Capital gives a unique insight into the dynamics of the real estate capital markets around the world. It projects that Canada and Germany have the greatest potential for increasing real estate investment from around the world.

Download the Report directly:
http://www.knightfrank.com/research/active-capital-2018-5650.aspx

Knight Frank Active Capital Report 2018: Canada and Germany Attract Further Real Estate Investment

Berlin Remains in the Top 5 of the Most Dynamic Cities in Europe

Savills Investment Management LLP has published their annual  "Savills IM Dynamic Cities Index" for Europe.

Europe stands among the most urbanised regions on the globe. Trends
in urbanisation are increasingly important for investors. However, not
all cities are equal. With the predicted growth of disruptive technology,
it is vital to identify locations that will show resilience to change. 

The Savills Investment Management Dynamic Cities
index incorporates cities’ longer-term upwards growth
potential rather than focus on the one- to two-year,
shorter-term real estate cycle.
Using 60 indicators across 6 subcategories, Savills
Investment Management has identified London,
Cambridge, Paris, Amsterdam and Berlin as the top
five European cities for real estate investment.
KIRAN PATEL Global Chief Investment Officer Savills Investment Management

http://www.dynamiccities.savillsim.com/

London, Cambridge, Paris, Amsterdam and Berlin remain the five most dynamic cities in Europe, according to Savills Investment Management. They claim their position in the new edition of the "Savills IM Dynamic Cities Index", for which 130 European cities and city regions were evaluated according to the criteria of innovation, inspiration, inclusion, networking, investment and infrastructure. The index is led by cities that are successful in attracting and retaining talent, promoting innovation, and increasing productivity, which in turn drives prosperity and population growth and thus has a positive impact on the commercial real estate markets. Most of the locations investigated achieved better results than in the previous year. In Germany, especially Frankfurt (+4 in 17th place) improved.

The full report is available at this link:
http://www.dynamiccities.savillsim.com/resources/documents/Dynamic_Cities_ResearchPaper_2018.pdf
And an interactive presentation with visualisation of the the results and their components allowing direct comparison and search is available at this link:
http://www.dynamiccities.savillsim.com/city-rankings

Berlin Remains in the Top 5 of the Most Dynamic Cities in Europe

Eight Percent of Office Space Turnover in Berlin are Accounted For by Flexible Workspaces.

The average share of Workspace as a Service (WaaS) take-up in Europe reached 7.5% in Q1 2018,
up from 7.2% in 2017 and almost three times higher compared to 2016, corresponding to a total volume of 680,000 m² according to Savills.

“The effect of 'on-demand' economy on the office sector, is bringing the expectation for higher flexibility, shorter leases and personalised services.” 

Eri Mitsostergiou, Savills European Research

Briefing note Workspace as a Service (WaaS) Trend or necessity?

The largest market over the past five quarters was London (217,000 m²), followed by Paris (126,000 m²) and Berlin (81,000 m²).

Eight percent of space turnover in Berlin are accounted for by Flexible Workspaces.

Eight Percent of Office Space Turnover in Berlin are Accounted For by Flexible Workspaces.

Changes on Share Deal Regulations To Make Them Less Attractive

The controversial methods used by property companies to avoid property sales tax (stamp duty) have been a thorn in the side of the tax authorities in the German states as they are the recipients of the revenue from this tax. The current federal government has picked up the issue as it is regulated by federal law and was agreed as an action item in the coalition agreement. The finance ministers of the states (Bundesländer) have passed a reform model for the regulations for Share Deals in their last joint session on Thursday. Any change in this taxation has to be agreed on by both levels of government.

In the Share Deal model the parties involved use a loophole in the tax code selling shares in a property instead of the entire property. If the amount of shares sold is below 95% there is no property sales tax because in theory the property remains with the company owning it and the company has not fully changed ownership.

• In the new model this quota is to be reduced to 90% in order to avoid property sales tax.

Another condition is, that the owner of  the remaining 5% plus, 10% plus in the new model,  has to remain in the company for a minimum of 5 years to avoid taxation.

• In the new model the minimum holding time is planned to be extended to 10 years.

As the tax rates vary between 3.5% and 6.5% (overview of the states) of the purchase price in different states it poses the question if these changes are enough of a deterrent to not try to avoid this tax. The total amount lost to the states through this model is estimated at ca. 1 Billion Euro annually.

Stay tuned for updates.

Changes on Share Deal Regulations To Make Them Less Attractive

Cash in The Attic - Rooftop Developments in Berlin

The Urban Land Institute Leader Summit 2018 in Frankfurt in May touched on the subject of repurposing roof space in Berlin. Be it your classic attic rooftop development or installing completely new units on top of existing buildings:

In Brief: Repurposing Rooftop Space as Values Climb in Berlin

With property in high demand in Berlin—it had the largest year-over-year real estate price increase of any city in the world last year—it makes more sense than ever to look up for new opportunities. A number of developers have found success (or are hoping for a top return) from add-on projects atop existing structures in Germany’s capital.

For the full article and video: https://urbanland.uli.org/development-business/brief-repurposing-rooftop-space-values-climb-berlin/

This is especially interesting in "Mileuschutz" protected areas as there are no "luxury" limitations for the new apartments and the rent is not limited. You just cannot integrate existing apartments into the development. For more information on "Milieuschutz" see The Can Do and Can't Do Renovating Apartments in Certain Areas of Berlin in this blog.

Cash in The Attic - Rooftop Developments in Berlin