BERLIN (Reuters) - A new luxury residence going up in the heart of east Berlin promises airy lofts, a swimming pool, spa and a concierge service — the kind of luxury you would expect to find in London or New York.
The “Fehrbelliner” complex is one of a growing number of high-end developments sprouting up in the German capital, injecting new life into a long-suffering real estate market better known for its graffiti-covered squats and prefab Soviet-style cement constructions.
Boasting exotic names like “Fellini” and “Oxford,” the new developments offer apartments with price tags approaching 10,000 euros ($15,700) per square-meter, more than double the cost of the city’s top offerings just a couple of years ago.
They amount to a high-stakes bet that Berlin, which disappointed so many investors after the fall of the Wall, is finally blossoming into a political and cultural hub capable of luring the affluent from other parts of Germany and abroad.
“The whole concept of luxury living in Berlin is new,” said Roman Heidrich, leader of a new Berlin-based residential property team at Jones Lang LaSalle that was established earlier this year in response to the emerging market.
“All of a sudden we are seeing a large number of high-end projects being built or in the pipeline. It remains to be seen whether they will all find buyers.”
While property markets in European capitals like Madrid, London and Paris boomed in recent years only to cool off in the face of a credit crunch spawned by the U.S. subprime crisis, Berlin has confounded investors for nearly two decades by defying broader market trends.
Prices have remained stubbornly low, weighed down by the lowest home ownership rates in all of Germany, a lack of industry, high unemployment and a post-Wall sprawl that has upset the balance between supply and demand.
According to figures compiled by Deutsche Bank analyst Tobias Just, the average price of a flat in Berlin at the end of 2007 was 2,620 euros per square meter, compared to 3,700 euros in Munich, 4,780 in London and 5,352 in Paris.
While Paris, London and Madrid have enjoyed double-digit growth in prices over the past five years, Just puts the rise in Berlin at a paltry 0.2 percent.
Now this may be changing — at least in Mitte and Prenzlauer Berg, trendy districts in the former east whose leafy streets lined with art galleries, restaurants and cafes are Berlin’s answer to New York’s West Village and London’s Notting Hill.
At the southern edge of Mitte, between the German foreign ministry and the picturesque Gendarmenmarkt square, a new neighborhood of shiny townhouses and luxury apartments has risen up over the past year.
Maik Uwe Hinkel, a veteran Berlin property developer, says he could have sold each of the 17 flats in the gleaming “Oxford Residence” there three or four times over.
“This area is very much in demand. We have Spanish, Italian, Polish and French buyers as well as Germans,” he said.
But even he is cautious about the huge number of luxury properties hitting the market at once — about 30 new developments in the Mitte area alone by his estimation.
Perhaps the biggest project of all is the ambitious “Tacheles Quarter,” a massive residential and commercial complex totaling 80,000 square meters that the Fundus Group, builders of Berlin’s Adlon Hotel, aim to begin next year.
Smack dab in the heart of Mitte, next to a symbol of Berlin’s early post-Wall era — the crumbling Tacheles art centre — the development will boast a “Flatiron” building to rival the one on Manhattan’s Fifth Avenue and a main residence meant to echo the iconic Dakota on New York’s Central Park West.
“Every project has an element of speculation to it. In the end you have to go with your gut feeling,” said Thomas Schingnitz, who is overseeing the planning of the venture.
“We have seen how the Mitte area has developed over the past two years. We think the demand is there. We are convinced this project will work.”
Signs are already emerging, however, that Berlin’s shift upmarket will be less than smooth and that the city may struggle to remain immune to market forces sweeping other European capitals.
Building of the Fehrbelliner complex, a brainchild of the Orco Property Group, whose glittery sale launch was timed to coincide with the 2007 Berlin Film Festival, ground to a halt in April as swelling costs forced Orco to seek out a new builder.
Andreas Steinbauer, head of sales at Orco Germany, remains confident he will find buyers for the property’s 9,000-euro per square-meter glass penthouses, with their unrivalled views of the Reichstag and television tower on Alexanderplatz.
But he concedes that the rising cost of raw materials, tighter credit conditions and competition from other new projects in Berlin have combined to cloud the project at the northern edge of Mitte.
“Our idea was to build at the very top end of the market,” said Steinbauer, who hopes construction will resume soon and the complex of 160 luxury apartments, boasting a “wellness” area and child-minding services, will be completed by the spring of 2010.
“But there is a problem when so many new projects come at once. In other German cities like Munich you can build a luxury building and you know what you’re getting into. In Berlin there is uncertainty, a certain amount of risk involved.”
Additional reporting by Dave Graham; editing by Rory Channing