High-end projects inject life into Berlin property market

July 29, 2008
High-end projects inject life into Berlin property market
New developments offer flats with price tags around 10,000 euros per
sq metre

(BERLIN) A new luxury residence going up in the heart of east Berlin
promises airy lofts, a swimming pool, spa and a concierge service -
the kind of luxury you would expect to find in London or New York.

The 'Fehrbelliner' complex is one of a growing number of high-end
developments sprouting up in the German capital, injecting new life
into a long-suffering real estate market better known for its
graffiti-covered squats and prefab Soviet-style cement constructions.

Boasting exotic names like 'Fellini' and 'Oxford', the new
developments offer apartments with price tags approaching 10,000
euros (S$21,432) per square metre, more than double the cost of the
city's top offerings just a couple of years ago.

They amount to a high-stakes bet that Berlin, which disappointed so
many investors after the fall of the Wall, is finally blossoming into
a political and cultural hub capable of luring the affluent from
other parts of Germany and abroad.

'The whole concept of luxury living in Berlin is new,' said Roman
Heidrich, leader of a new Berlin-based residential property team at
Jones Lang LaSalle that was established earlier this year in response
to the emerging market. 'All of a sudden we are seeing a large number
of high-end projects being built or in the pipeline. It remains to be
seen whether they will all find buyers.'

While property markets in European capitals like Madrid, London and
Paris boomed in recent years only to cool off in the face of a credit
crunch spawned by the US sub-prime crisis, Berlin has confounded
investors for nearly two decades by defying broader market trends.

Prices have remained stubbornly low, weighed down by the lowest home
ownership rates in all of Germany, a lack of industry, high
unemployment and a post-Wall sprawl that has upset the balance
between supply and demand.

According to figures compiled by Deutsche Bank analyst Tobias Just,
the average price of a flat in Berlin at the end of 2007 was 2,620
euros per square metre, compared to 3,700 euros in Munich, 4,780 in
London and 5,352 in Paris.

While Paris, London and Madrid have enjoyed double-digit growth in
prices over the past five years, Mr Just puts the rise in Berlin at a
paltry 0.2 per cent.

Now this may be changing - at least in Mitte and Prenzlauer Berg,
trendy districts in the former east whose leafy streets lined with
art galleries, restaurants and cafes are Berlin's answer to New
York's West Village and London's Notting Hill.

At the southern edge of Mitte, between the German foreign ministry
and the picturesque Gendarmenmarkt square, a new neighbourhood of
shiny townhouses and luxury apartments has risen up over the past
year.

Maik Uwe Hinkel, a veteran Berlin property developer, says he could
have sold each of the 17 flats in the gleaming 'Oxford Residence'
there three or four times over. 'This area is very much in demand. We
have Spanish, Italian, Polish and French buyers as well as Germans,'
he said.

But even he is cautious about the huge number of luxury properties
hitting the market at once - about 30 new developments in the Mitte
area alone by his estimation.

Perhaps the biggest project of all is the ambitious 'Tacheles
Quarter', a massive residential and commercial complex totalling
80,000 square metres that the Fundus Group, builders of Berlin's
Adlon Hotel, aim to begin next year.

Smack dab in the heart of Mitte, next to a symbol of Berlin's early
post-Wall era - the crumbling Tacheles art centre - the development
will boast a 'Flatiron' building to rival the one on Manhattan's
Fifth Avenue and a main residence meant to echo the iconic Dakota on
New York's Central Park West.

'Every project has an element of speculation to it. In the end you
have to go with your gut feeling,' said Thomas Schingnitz, who is
overseeing the planning of the venture. 'We have seen how the Mitte
area has developed over the past two years. We think the demand is
there. We are convinced this project will work.'

Signs are already emerging, however, that Berlin's shift upmarket
will be less than smooth and that the city may struggle to remain
immune to market forces sweeping other European capitals.

Building of the Fehrbelliner complex, a brainchild of the Orco
Property Group, whose glittery sale launch was timed to coincide with
the 2007 Berlin Film Festival, ground to a halt in April as swelling
costs forced Orco to seek out a new builder.

Andreas Steinbauer, head of sales at Orco Germany, remains confident
he will find buyers for the property's 9,000-euro per square metre
glass penthouses, with their unrivalled views of the Reichstag and
television tower on Alexanderplatz.

But he concedes that the rising cost of raw materials, tighter credit
conditions and competition from other new projects in Berlin have
combined to cloud the project at the northern edge of Mitte.

'Our idea was to build at the very top end of the market,' said Mr
Steinbauer, who hopes construction will resume soon and the complex
of 160 luxury apartments, boasting a 'wellness' area and child-
minding services, will be completed by the spring of 2010.

'But there is a problem when so many new projects come at once. In
other German cities like Munich you can build a luxury building and
you know what you're getting into. In Berlin there is uncertainty, a
certain amount of risk involved,' he added.