In conversation with Sascha Moayedi, Engel & Völkers top agent and expert for the Berlin real estate market.
How is the real estate market developing? Where are investments worthwhile? What is the impact of the Covid pandemic? Are residential and commercial buildings an attractive asset class? We talked to the multi-award winning real estate expert Sascha Moayedi about these and other important questions.
Sascha Moayedi has been working for Engel & Völkers Commercial in Berlin as a Senior Consultant Investment since 2004. Engel & Völkers Commercial is represented in more than 60 markets in Germany with around 600 real estate experts. The focus of the business is on the brokerage of investment properties and land as well as office buildings, retail, and industrial plots in Berlin.
From 2014 to 2018, Sascha Moayedi was recognised as an Engel & Völkers top agent, including four times as number one worldwide. He has also been an Engel & Völkers licensed partner at the Magdeburg location since the end of 2016. Moayedi is known far beyond Berlin as the host of his “Private Real Estate Dinners”, where high-profile guests from the real estate industry come together, discuss current developments and donate to charitable causes – in early 2020, more than €100,000 were donated for Berlin health projects. Exklusiv – Immobilien in Berlin has interviewed the real estate expert.
Mr Moayedi, the sales figures and prices on Berlin’s real estate market have only known one direction in the past ten years – upwards. What is special about the capital’s real estate market and how do you think it will develop over the next few years?
The price development over the last ten years reflects the positive development of Berlin. With a growth rate of 1.9 per cent, Berlin is the most economically dynamic federal state. Between 2011 and 2016, the city grew by an average of around 45,000 people per year. Even though the momentum has flattened out in recent years and the number of people moving to the city declined slightly for the first time in the first half of 2020 – partly due to Covid – the Senate continues to expect strong population growth: from the current 3.76 million inhabitants to just under 4 million inhabitants by 2030.
Berlin is not only a magnet for newcomers and tourists from all over the world, but also offers excellent operating conditions for business. The city owes much of its dynamism to the start-up scene. The current cycle in Berlin’s real estate market has once again resulted in a significant upturn in prices until the end of 2019.
At the moment, the market is experiencing more of a sideways movement and a slight correction sub-markets. In addition to the overall economic uncertainties as a result of the pandemic, this is also due to the continuing lack of supply on the housing market as a result of the number of new constructions, which has been too low for years.
In search of affordable property, more and more Germans are migrating from the big cities to the surrounding areas. This can also be observed in other European major cities such as London. Will this trend also continue in Berlin and the surrounding area of Brandenburg – spurred on by the increase in home office working during the pandemic?
The trend towards the Berlin hinterland is unmistakable. The recent slowdown in population growth is also largely due to the exodus of young families because of the housing shortage: In 2019, around 34,500 Berliners moved to Brandenburg, twice as many as in the other direction. If new construction is not ramped up immediately, this trend will continue.
The roughly 12,800 building permits issued between January and July 2020 are nowhere near enough for this. In 2019, a total of only 18,999 flats were completed. This means that there is still a shortage of 145,000 apartments in Berlin, according to the housing market report of Investitionsbank Berlin (IBB) from March 2020. Especially regarding the need for affordable housing, policymakers are called upon and challenged as never before.
In addition, the out-migration trend has been further accelerated in recent months by the Covid pandemic: In fact, it can be observed that the proximity of the home to the workplace is becoming less important due to increasing levels of work from home with telephone and video conferencing. Nevertheless, a good connection to public transport and, if possible, to the motorway, as well as a sound infrastructure with local amenities, schools and day-care centres, remain decisive for the choice of housing in Berlin’s periphery and in the outer suburbs. Under these circumstances, it is naturally attractive, especially for the families moving away, to have more living space and possibly also a backyard for the same money.
Due to comparatively less regulatory market intervention, the Berlin hinterland also offers potentially good return prospects for investors: There is no rent cap in Brandenburg.
“Those who bet on Berlin in the long term can only win”
The Covid pandemic has had a catastrophic effect on many sectors of the economy. The real estate market, on the other hand, is hardly affected, and prices also continue to rise. What do you attribute this to? And what other risks do you see regarding Covid?
The real estate market and the individual asset classes must be viewed in a very nuanced way. The hotel market has collapsed massively in some cases, due to the lack of tourists. The retail sector with restaurants and retail spaces is also very much affected by the Covid pandemic, along with their tenants and owners.
Regarding office investment, I am seeing some companies rethink their search profile. Smaller companies and especially start-ups naturally have less stamina in a crisis like this and are more severely affected. This has an impact on space requirements and, in the long term, possibly also on rents. Particularly high-quality projects in prime locations, such as the office developments at the new Tacheles Quarter in Berlin-Mitte, are exempt from this, as past crises have shown. Mid-range projects, on the other hand, may already come under pressure.
The residential real estate market in Berlin is comparatively unaffected and crisis-proof – not only in view of the pandemic, but also despite political regulations such as the rent cap, the rent brake (Mietpreisbremse), milieu protection areas and impending conversion bans. Thus, the residential asset class is currently once again proving to be particularly attractive for investors.
As long as government intervention does not get out of hand, the market for residential and commercial buildings in particular will always be a market where it is possible to place one’s product with great success. Those who bet on Berlin in the long term can only win.
Investors interested in the residential and commercial asset class have different orientations: Some place great value on the security of their investment, others are very willing to take risks and are interested in high returns. Which orientation predominates and how is this market segment developing?
In the current property market report of the Berlin Property Valuation Committee (Gutachterausschuss für Grundstückswerte in Berlin, GAA), Chairman Reiner Rössler already pointed out: There is increasing restraint on the part of buyers in Berlin. According to the GAA, the outlook for 2020 shows the first signs of a change in general market behaviour, with some instances of outsized declines in sales. In 2019, only 887 residential and commercial properties were traded, down 15 per cent from 2018. This shows the effects of the rent cap as well as the general economic consequences of the Covid pandemic.
However, we are currently seeing increased demand again, especially from private investors, and are very confident and well-positioned for the last quarter of 2020. In addition, we are negotiating some larger portfolio transactions with large, established market participants.
In general, I can still strongly advise investors with an investment horizon of ten years and more to buy residential and commercial properties in Berlin – as a long-term hedge with conservative appreciation, and with financing interest rates that are still very low.
Due to entry prices and factors, this asset class is usually less suitable for investors with a short-term focus. Higher returns, which these investors are aiming for, are currently essentially only realisable in existing buildings through the conversion of rental flats and the sale of condominiums. The same is true for new construction as well as for property developments and office investments, where location is the decisive factor.
Condominiums in particular have long been in high demand among private investors. How do you assess the development of home ownership?
The home ownership rate in Germany is 45 per cent, which is at the bottom by European comparison. Particularly in Berlin, there is much room for improvement in this respect – with an ownership rate of currently only 17.4 per cent. Especially residents of sought-after metropolitan regions such as Berlin as well as single and middle-aged people are threatened with old-age poverty without home ownership. Even a small condo can prevent this.
A study carried out by the Pestel Institute from 2018 confirms this: More than a third of people in Germany will receive a statutory pension of €800 or less from 2030. Only those who no longer pay rent in old age can get by on this amount. The goal must be to bring more people into home ownership through consistent state support. The government’s “Baukindergeld” (building child benefit) is insufficient, especially since large parts of the population do not benefit from it.
The impending ban on the conversion of rented flats into owner-occupied flats, which was recently discussed, is a step in the completely wrong direction regarding the goal of avoiding old-age poverty through home ownership, and significantly exacerbates the problem. If goods are withdrawn from the market in this way, prices will rise even further.
Mr Moayedi, you are also a licensed partner of Engel & Völkers in Magdeburg. Do you see particular opportunities in the eastern German real estate market that appeal to you from an entrepreneurial point of view?
Definitely. Eastern German cities such as Leipzig and Dresden, but also Halle (Saale) and Erfurt are growth centres as university and research locations with a high influx and increasing purchasing power. The state capital of Magdeburg in particular has developed very well in recent years as a location for innovative companies and application-oriented research. Around 14,000 young people are now studying at Otto von Guericke University in the city.
At the same time, the 2020 Germany Market Report by Engel & Völkers Commercial shows that the eastern German cities are still inexpensive compared to the rest of Germany and therefore offer attractive investment options. Especially for investors who, for example, already own properties in A-cities such as Berlin and would like to broaden their portfolio, there are good opportunities for returns on development-ready properties with comparatively low entry prices.
In your hometown of Berlin, you organise the “Private Real Estate Dinner” where you combine business with philanthropy and collect donations for good causes in addition to the exchange between business people. How did this commitment come about?
The idea of these evenings was originally to give back something personal to the guests from my close network. For six years now, we have been coming together in this setting every January. I deliberately forego the usual marathon of events at the end of the year, as well as the usual gifts. Instead, the “Private Real Estate Dinner” also gave rise to the idea of jointly giving back to our city – to quote Erich Kästner: There is nothing good unless one does it.
As a Berliner and a father, the connection to projects from and for Berlin as well as for children is particularly important to me. In 2019, we were able to collect a total of around €50,000 for the Björn Schulz Foundation, for example, which supports families with children suffering from life-shortening illnesses through the Sonnenhof Hospice in Berlin-Pankow.
This January, a silent auction raised a record sum of more than €100,000. On the one hand, the donations went to the Alliance of Chronic Rare Diseases (ACHSE) e.V., an association which advocates for around four million affected children and adults in Germany. The second project to receive support was the purchase of a new surgical robot for paediatric neurosurgery at Charité Berlin, Germany’s largest facility with this specialisation for the youngest patients.
I am still thrilled about this great result and very grateful to all the guests for their fantastic support.
Finally, let us take a look into the future, Mr Moayedi. What will the Berlin real estate market look like in 2030? And what very personal plans and goals do you have for the next decade?
Like so many others, the past months of the Covid crisis have once again made me realise how important it is to focus more on our own values. For me, that means above all taking care of my health and spending more time with family and friends than everyday life sometimes allows.
For Berlin and the real estate market, I would like to see more political responsibility for sustainable development – with a clear focus on new construction. This is also connected to the hope that Berlin will become more investor-friendly; that the authorities will reduce bureaucratic hurdles and get much-needed projects off the ground more quickly, creating housing for the city and its people. And that regulations that have a counterproductive effect and whose financial resources do not benefit the majority of the population are reconsidered or revised. This includes the millions that the Berlin city districts invest in the advance purchase of individual houses within the framework of milieu protection instead of directing those funds towards new construction.
In particular, I expect the Federal Constitutional Court to clearly declare the rent cap unconstitutional and thus restore legal certainty for all parties involved. Already now, about half a year after the rent cap came into force, it is becoming clear how urgently Berlin needs this decision.
Thank you very much for the interview!