Reports that rents have climbed to new record highs somewhere in Germany seem to be published on a weekly basis. Especially in major cities like Berlin, the sustained growth in rent rates is never far from the public’s mind. The subject areas of housing, construction and rents have long evolved into the most significant and most controversial policy issues in the German capital. The rent cap imposed by the city government created quite a stir nationwide. But how does Berlin compare to other major cities in Germany, and what is the outlook going forward? Here is an overview of the current rental price trend.

Rents have soared in recent years

In sync with Germany’s nationwide trend, rent rates in Berlin have been climbing steadily for years. Not even the coronavirus pandemic has been able to stop the upward trend across the country – real estate markets have remained resilient. In Berlin, rents have more than doubled since 2007, as stats compiled by the Empirica Regio market research agency reveal.

Source: Empirica Regio; rent rates per square metre.

As with most other German cities, rent rates are highest in the inner-city districts, where they have experienced particularly brisk growth in recent years. The highest average rents in Berlin continue to be paid in the borough of Mitte. The latter also registered the fastest year-on-year growth among Berlin’s boroughs, at 3.4 percent in 2020.

Source: Berlin Hyp; new-tenancy rents per square metre.

Dip caused by Berlin’s rent cap

A look at rental listings of apartments to let in 2020 shows that the general rental price trend was stalled for a certain period of time by the so-called rent cap imposed by city hall by the Federal Constitutional Court. In fact, the rent average declined by a modest 2.8 percent compared to 2019. The dip is primarily explained by a rent decrease in the lower market segment to an average of 5.95 euros per square metre. At the other end of the scale, however, rent rates soared by about seven percent to a new average of 19.75 euros per square metre (source: www.berlinhyp.de). It should be borne in mind in this context that the number of listings on the open market took a nosedive – the Tagesspiegel daily reported a supply contraction by up to 50 percent. In short, this rent control measure failed to improve the situation on Berlin’s rental market.

Forecasts predict faster growth

A look at the figures for 2021 reveals: The one-off effect of the rent cap was a flash in the pan. The rental price growth continued unabashed last year. And it is safe to expect the rental growth to keep accelerating in future. A market report published by the ImmoScout24 real estate portal projects significant price hikes in 2022. Rent rates both for existing apartments and for new-build apartments are expected to see increases of up to eight percent. The situation is compounded by pent-up demand on a major scale. In no other city is each listed apartment matched by as many flat hunters as in Berlin (source: www.immobilienscout24.de).

Rent rates particularly high for new-build units

Compared to other major cities in Germany, average rents in Berlin are comparatively affordable at 10.45 euros per square metre. Easily the top-performer is Munich with an average rental tone of 18.86 euros per square metre. Trailing it at some distance are Frankfurt am Main, Stuttgart, Freiburg and Heidelberg, in that order, with rent averages of 12.86 to 14.42 euros per square metre. An aspect unique to the Berlin market is the comparatively high rent level for new-build apartments. Whereas passing rents have experienced relatively moderate growth over the past years, rent rates for new-build units soared by almost 30 percent during the period between 2016 and 2021.

It is the fastest growth in new-build rents of any German metropolis. With a new-build rent average of 16.19 euros per square metre, the German capital has moved up into fourth place nationwide. In a parallel development, prices for new-build ownership apartments keep climbing quickly. The main reason for this development is the sluggish pace at which new residential accommodation is being completed in Berlin, not least due to the high hurdles to be overcome.

Bright prospects for potential buyers and investors

The prospects are sound not just for owner-occupiers but also for buy-to-let investors. Especially in Berlin, real estate remains an outperforming, low-risk investment asset type. As rent rates keep going up, owner-occupiers of residential units are at an advantage because they are immune to the development of rents. The Housing Cost Report 2021 by ACCENTRO shows that the housing cost advantage of owner-occupancy over renting can equal up to 56 percent in the long run.

But landlords benefit from the development as well. They may look forward to steady increase in rental income. In order to fully benefit from the anticipated acceleration of the rental price trend, now is arguably an opportune time for people to make their dream of homeownership come true by acquiring a property. Whether you are planning to buy a home to live in it yourself or in order to let it, be sure to check out Accentro’s property listings in Berlin to find the property that best suits your needs.

Conclusion: Berlin remains attractive

It is safe to assume that the growth in rental prices will continue indefinitely, particularly so in Germany’s metropolises. Especially Berlin, given its plethora of cultural amenities and its diversified economic opportunities, is popular among young people and families all over Germany while appealing to many outside Germany as well. There is no end in sight to the strong inflow of new residents to the city – demand for housing remaining strong due to the persistently short supply, which in turn is reflected in the steadily rising rent rates. For investors, of course, it is a piece of good news: Berlin remains an extremely attractive market with significant growth upside. This was most recently confirmed by a survey that PwC and the Urban Land Institute published, which credits the German capital with better long-term opportunities than any other real estate location in Europe (sources: www.pwc.com).