The transactional rigidity in the Berlin residential market will continue until mid 2023. This is the forecast of Einar Skjerven, founder and owner of Skjerven Group, which has transacted residential investments in Berlin with a volume of around EUR 2.0 billion since 2006. Until the summer of 2022, apartments in Berlin were in demand as in previous years. During this period, the Skjerven Group turned over around EUR 10 million from the sale of condominiums. The apartments were sold mainly to owner-occupiers from Berlin. Since summer 2022, this business has largely come to a standstill. “Given the increase in interest rates, few prospective buyers currently have the equity to finance an apartment out of their own pockets.”
On the purchasing side, Skjerven mainly works for international institutional investors. These are currently in an alligator position, he said. “The players are waiting for offers where apartment buildings are offered at about 20 to 22 times the annual net cold rent,” Skjerven says. The benchmark is U.S. government bonds and cash deposits, which are currently yielding over four percent in some cases. Anything yielding less is considered too expensive and is therefore not considered.
For the majority of the houses and portfolios offered in Berlin, he said, this means that the seller side will have to adjust its asking price downward significantly. At the beginning of 2022 the 30 times net rent or more for a multi-family house was usually still being paid in Berlin. The high price expectations on the seller side will continue to affect market activity for another three to six months, according to Skjerven.
Whether there will be any movement in the Berlin housing market in the near future depends, to a large extent, on the behavior of the banks, according to Skjerven. “After more than ten years of boom and comparatively high transaction volumes, many investments are currently facing refinancing,” says Skjerven. “And by no means all buyers are in a position to handle the significantly higher monthly financing rates in the new interest rate environment.” At the moment, however, many banks are keeping their feet on the ground and supporting owners with extensions.
With each passing month, however, the resilience of business models gains weight, he adds. “Those who bought at too high a factor in the past may not have acted sustainably, and this will be corrected by the market mechanism in the future,” says Skjerven. For long-term investors, however, Berlin remains an interesting target market, he adds. “The high demand for housing, the solid employment development and the volume of new builds, which is clearly too low compared to the demand, provided a high degree of investment security, which is hardly diminished even by the antics of parts of Berlin’s state politics.”
The weak euro also speaks in favor of USD nominated investors entering the market. Currency effects alone had reduced the price of German real estate by up to 20 percent over the course of the year. In view of this situation, Skjerven assumes that amongst others, USD nominated pension funds will continue investing into the Berlin residential market.
