Berlin’s booming, but some are warning that the growth is unsustainable

Berlin's Property Boom Still Has Room to Grow

Berlin's property market is booming, but some are warning that the growth is unsustainable - is the city's property bubble about to burst, or is there still room to grow?

For many years, the property market in Berlin was overshadowed by other, better performing European cities - including several others in Germany. The German capital was known for its particularly cheap rents, which drew a significant number of young creatives, and gave the city a trendy bohemian image, but did little for the city's rental prices and real estate. However, all of this has changed in recent years, as factors ranging from a stable economy, to record employment and an increase in overseas investment sent the market on an upwards trajectory.

Now, Berlin has the best performing property market in the world, with prices rising by 20.5% from 2016 to 2017. This change in fortunes has seen the city feature in PwC's annual survey of emerging real estate trends in Europe for the fourth year in a row. It was even voted the best city in the world for millennials, not least because it has become more successful in attracting young professions - especially those wishing to work in the city's thriving tech sector, which counts Uber and Soundcloud among its most high-profile denizens.

However, despite these undeniable successes, some have warned caution. With this success has come rumblings of recession, with more cautious commentators predicting that a property bubble is due to burst at any moment. One aspect that is often highlighted as a cause for concern is the rising population compared to the city's strict building and housing policies.

The government controls the number of new-build constructions that can be allowed each year with a limited number of permits. This policy has the effect of significantly increasing demand for existing property. The number of new permits being issued has already risen to an all-time high, but some voices warn that this may not be enough to create sustainable further growth, especially as the number of people arriving in the city shows no sign of slowing.

So, should this be of concern to investors? Naturally, the property market in Berlin will slow one day, but for now there is still plenty of room to grow. While some may warn of an imminent burst of the bubble, others, myself included, believe that we are far from the peak of growth.

After all, Berlin is not the only German city experiencing a spike in popularity. There has been an influx of investors looking for a safe European bet now that Brexit is causing uncertainty in the UK and Ireland, another strong tech hub. Berlin is, without a doubt, leading the pack among its rival cities, but a strong showing from other parts of Germany could help to ease some pressure off the city's property market.

It is also quite likely that the German government will begin to loosen its restrictions on new developments. They know that Berlin's growth has the potential to help with the unequal distribution of wealth across the city, which sees the East still trailing behind the West economically, even decades following reunification. They will therefore want the city to remain an attractive prospect to investors. Add to this the fact that the price per square footage in Berlin is far behind other capital cities - even behind other German cities, including Hamburg - and the outlook is nowhere near as dark as some are suggesting.   

There is still plenty of room for optimism when it comes to Berlin's property market. Michael Zahn, CEO of the German property giant Deutsche Wohnen SE, insists that the country is simply making up for the lost years, in which Germany saw almost no growth at all. Every investor should always be keeping a close eye on the horizon for the first sign of red flags, but at the moment the future remains bright for Berlin.