Demand for commercial real estate develops poorly: Overview of the Berlin market
At the end of last year, demand for commercial real estate in Berlin fell below the historic low seen in 2019. At the beginning of 2021, the total trading volume was at 7.36 billion euros, down 34% from the previous period.
The year 2020 for the real estate market in Berlin started out extremely active, and experts were optimistic, but the pandemic disrupted all plans and fundamentally changed the processes. The second and third quarters showed weak results, but since the fourth quarter there has been a recovery. The segment entered the current 2021 with a positive dynamic, albeit a year of losses.
The pandemic made investors reconsider their approaches to doing business. They have become more cautious about projects and are more careful in selecting assets for investment. When a tenant rents, they go through a series of checks to make sure they are creditworthy.
As shown by three quarters of this year – the situation in the market is developing quite sluggishly. There is no special growth, which primarily affects the retail and hotel segments.
According to analysts, investors will begin to act when they see the real interest from consumers in shopping, travel and hotel rooms. Meanwhile, people are still afraid to go on long trips to other countries, despite the implementation of many states of the vaccination program. Only in the current period in the market in Berlin increased the dynamics of investment trading, so we can expect performance better than it was in 2020.
It should be noted that the relatively good performance in 2020 is due to a major transaction in the first quarter. At that time, more than 80% of TLG’s share in Aroundtown was sold, resulting in a total investment of €5.9 billion, which was higher than the average for the past 10 years.
The pandemic has forced investors to reduce activity in the market, and the number of transactions fell. The largest decline was observed in the segment of hotel real estate, where the number of transactions fell by 50%, among commercial and industrial properties the reduction was observed at the level of 38%. Office premises lost 37% of the total number of transactions. Despite the fact that offices are still the best-selling assets, the volume of transactions in this segment has fallen, now their share is 62%, and in 2019 it was at 70%.
As for the yield of office and premium commercial real estate, it has not changed since last year – 2.7% and 2.8%, which is low for assets of this class.