New international property investment trend: The tide is turning from the Thames to the Spree

Whether it’s the constant topic of Brexit or the misadventures of the U.S. president Donald Trump: Political uncertainties are at the forefront of international condominium buyers’ concerns. As a result, priorities are shifting: Rather than buying in cities where yield potentials have already been maxed out, safety-oriented investments are gaining ground. It is therefore no surprise that Berlin is starting to overtake London as the most important European capital for residential property investments. In contrast to the “usual suspects” among the top real estate centers, such as London, Paris or New York, the start-up capital on the River Spree is experiencing an economic upswing that leaves almost every other European city in the shade. Although it may take Berlin a while to catch up with London, the potential does seem to be there, according to the latest Wealth Report from Knight Frank. In spring ever year, Knight Frank’s report examines the lifestyles and spending of the wealthy, or ultra-high-net-worth-individuals (UHNWIs), as they are commonly known. This group of affluent individuals is defined as wealthy domestic and international investors with assets of more than USD 30 million. There are currently 193,490 individuals classed as UHNWIs, an increase of 6,340 over the previous year. The buying behavior of this financially strong clientele is viewed as an indicator of emerging trends, as well as shifts in the global market for prime residential property.

Indeed, approximately three quarters (73 percent) of those surveyed by Knight Frank said that the greatest risk to their wealth is current political upheaval. Some 67 percent even worry that the value of their investments could suffer as a direct result. In response, UHNWIs have shifted their priorities as far as residential property investments are concerned, which has led to a corresponding shake up in the ranking of the most in-demand cities.  This is evident from even a quick glance at the latest Prime International Residential Index (PIRI), which tracks changes in prime property values in the world’s 100 most important cities. For the first time, London was relegated to the group of cities bringing up the rear, ranking 92nd. London’s prime property prices fell by 6.3 percent last year. Just one year earlier, London was awarded a mid-table ranking, landing 54th, with price rises of around one percent – which is not unusual in a saturated real estate market such as London. That all indications point to a crash landing is not only due to Britain’s impending exit from the EU, but also to the recent three percent increase in property transfer tax (known in the UK as stamp duty) on second homes. In response, investors are shifting their focus to comparatively low-risk European locations, above all Amsterdam (+10.1 percent; 10th in the new ranking) and Berlin (+8.7 percent; 13th), ahead of Frankfurt and even Munich. These European cities were only prevented from achieving even higher rankings by the three major Chinese centers, Shanghai, Beijing and Guangzhou, which had aggressively risen to the top three spots in the ranking thanks to excessive price increases and speculative tendencies (+27.4 percent; + 26.8 percent; +26.6 percent), thereby pushing the remaining 93 cities down the ranking. The cities that lost out included solid growth markets like Berlin, which was denied a jump into the top ten this year (at least).

As Knight Frank reports, the main reason that Berlin is closing the gap on London is its significant growth potential. A buyer with USD one million is able to buy 30 square meters of prime residential space in London, whereas the same amount buys almost nine times as much space in Berlin, 87 sqm. This was reason enough for the report’s authors to include Berlin as one of their “cities to watch” for the very first time. “Berlin is a model for successful regeneration” and “risk is tempered by a level of transparency and good governance,” is how the report puts it. Berlin’s economy is being boosted by a vibrant start-up scene, with more than 40,000 new companies incorporated each year. At the same time, the cost of living in Berlin is around a third less than London. 174,000 people have moved to Berlin since 2014, and more than half of them have come from overseas.  This is a major plus point for the global wealth elite. And, after all, London and Berlin are closer than ever before.