Why Berlin has double the rental yields of London
20 years after fall of Berlin wall East Berlin is now producing better returns than West Berlin and double that of London for UK investors.
You may have seen world leaders in Berlin recently for the 20 year wall celebrations or watched Matt Frie’s excellent recent BBC 2 documentary on Berlin architecture, but there is a quiet revolution going on in East Berlin as far as property investments go, for the first time the rents in trendy East Berlin have overtaken the more established areas in the West of the city, with investors able to experience starting yields of around 8% net rising to 10% net in many cases, it’s proving very attractive to UK investors.
Traditionally like London, the West was the place to live in Berlin, but more and more the trendy East side of town is now the place to live, as in London where Clerkenwell and Shoreditch in recent years have come through as the places people want to live with there new bars and restaurants, so the same is true for Berlin areas a few years ago that were not that attractive to tenants such as Friedrichshain, Kreuzberg and Neukölln have seen the trendy student and artist brigade move in followed by the bars, restaurants, galleries and markets, and rents have risen in line with demand.
John Aitken of Nilreb.com (Berlin spelt backwards) who at the start of next year will have been in the Berlin market for 5 years said “we currently have a building for sale of 32 already rented apartments (3 being commercial units) in the East of Berlin, with a net yield of around 8% once a few tenants move on it’s possible to re-rent on the open market and increase rents accordingly in the areas with high demand thus increasing the yields, as an example we have a property for sale it's a fully rented apartment block in a nice are of Friedrichshain with a current net yield of 9%, we would work with the purchaser to get the yield up to over 10% in the shortest possible time period.
As a direct comparison to London the area where this property would be located would perhaps be fringe Islington where prices per square foot are around £500 or so, this property in Friedrichshain is just over £50 per square foot, 1/10th of a similar location in London, but the rent is only ¼ or 1/5th of London, hence the yields in Berlin are on the whole at least double that of London.
Banks are happy to lend 75% - 80% on these buildings in many cases, as they see them as safe investments compared to say a single apartment as if a couple of tenants vacate in a block it only has a short term effect on cash flow as the average tenant stays in a Berlin apartment for around 7 years, Aitken said ‘traditional German tenants expect to pay low rents as many older apartments have painted floors and by law just a sink and a cooker as a kitchen, but when a tenant vacates one of these apartments it’s an opportunity to sand and polish the wooden floors and put in a nice fitted kitchen, etc and the rental level for a refurbished apartment is significantly different, our experience for the 1,000 or so apartments our clients own is between 30 – 100% increase in rental levels, but it does of course depend on the level of refurbishment required, as many older tenants have been in their apartments much longer then the average 7 years’
One of the main differences with Berlin rentals compared to London rentals is the tenant in Berlin pays for all the running costs of a building, from the insurance, snow clearance, service charges, etc everything apart from the building maintenance and the property management cost, Berlin is a rental city with some 88% of tenants renting, so there are plenty of management companies dealing with property management for overseas investors, that’s much higher in East Berlin than West Berlin but it’s already starting to change.
Aitken goes on to say ‘Not many people have Berlin on their list as a place to invest, it not your traditionally well know investment City”
With a population of some 3.4 million people and where according to the official Berlin tourist board it had some 147 million visitors last year (including day trippers) something is going on there, it’s a city full of culture where you can pick up an entire building for the cost of a 2 bedroom apartment in Central London, that has to be worth a look even if you just come for the weekend, but make sure you stay in the East’
