Residential areas on the periphery of major German cities have been gaining in attractiveness as the housing supply in downtown locations continues to dry up. In days gone by, the suburbs – often understood to mean tower blocks – were considered synonymous with social unrest. Lately, however, many landlords and residents have reported that the image of such estates has shifted. The GdW Federal Association of German Housing and Real Estate Companies has gone so far as to herald a “renaissance” of housing estates.
Homeowners at an Advantage
The population in Germany's “Big Seven” cities has increased by around 330,000 residents since 2007, according to the Federal Ministry of Transport, Building and Urban Development. Housing construction – while positively booming – has been unable to keep up with demand. Last year alone, around 48,000 residents in Berlin were looking for flats. And the inflow of people to the city is likely to continue: Its population is expected to increase by no less than 250,000 residents between now and 2030. It is therefore unsurprising to see rents go up in many parts of the city. For 2014, the analysts of bulwiengesa predict a prime rent of 15.85 euros and an average rent of 11.13 euros per square metre for flats in Berlin. While this is certainly good news for investors or condominium owners, it does not bode well for flat hunters. Many of them can only afford to rent existing flats in the city's outskirts anymore. Quite a few of them have already taken the step, as figures released by the BBU Association of Housing Entrepreneurs in Berlin and Brandenburg show. The vacancy rate in the 700,000 flats owned by public and cooperative housing companies dropped from more than five percent down to two percent over the past ten years.
Tower Blocks an Attractive Property Investment
While this may sound like displacement, living in the suburbs need not be a bad thing. On the one hand, the outlying boroughs are optimally connected to Berlin's excellent local transportation network. On the other hand, numerous companies and Berlin's Senate have invested massive amounts in suburban estates such as Märkisches Viertel. As a result, many housing estates now offer a much more amenable residential setting than they did ten or twenty years ago. Moreover, the interior fit-out of the apartments was noticeably upgraded. The main motive for most tenants, however, is bound to be the comparatively low average rent of five euros per square metre.
The challenge for investors and municipalities is now to ensure that the rent roll in these estates represents a sound blend of social groups. If this is accomplished, chances are that peripheral locations will not only establish themselves as popular places of residence but will also receive more attention as investment destination.