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Brexit’s consequences on the estate market in Berlin & Germany

Posted by investabcom on September 10, 2016

The U.K’s decision to leave the E.U is still a schock that many actors on the continent still have to digest. The surprise victory of the “leave” camp has left many speech-less. After a first irrational reaction of the financial markets, it is now time to look at the future and try to understand what could be the economic consequences of that event for Germany, Berlin and their estate markets.

Berlin already as the new center of Europe?

If London has been one of the most prominent centers of  the european union economy, the Brexit has changed the game and maybe changed the economic axis of the union entirely. Many think Paris or Frankfurt will be the first candidates to take over all financial activities in which the City has been specialized in. The bets are still on the table however to know who will be the new champion when it comes to the new economy and their roaring start-ups.

One of the founding principles of the E.U is the freedom of movement for goods, people and capital in the Schengen one. When rejecting that compromise, the U.K has put in danger a lot of british start-ups that see the E.U as one of their most important markets, which huge growth opportunities. One should of course think of the ecommerce sector right away, which has enormously taken advantage of the absence of borders and customs.

The FinTech is also particularly at risk. To be able to trade in the financial & banking sectors, companies have to apply to a so-called “Passporting” authorization which allows them to trade within the E.U. With the Brexit, this licence has no value outside the U.K, limiting the size of the market to conquer.

Berlin fits in this picture right in as one of the most promising destination for FinTech & ecommerce “refugees” from the U.K. The local industry already has the experience and skills with companies such as Rocket Internet, Number26, Savedo or KreditTech. Why not considering the german capital as the next move to save british start-ups from existence? If Paris or Frankfurt are also good candidates, it is certain that Berlin will benefit from the consequences of the Brexit on the mid & long term

What are the impacts of the Brexit on the German & Berlin real estate market?

One recent survey conducted by a real estate expert*, 69% of british investors are convinced that the Brexit will have negative impacts on the british real estate market. If the tide were to turn in favor of the European continent, London would for example be the first victim as people and capital fleeing the city would decrease the demand on accommodation.

Germany looks like it is in good position to take advantage of this phenomenon. Another study by real estate association IVD announces that 60% of estate professionals expect a sharp increase in requests coming from british investors. 47% of them also consider that many investors that preferred their domestic market up until now will now look at Germany in the future.

Why is Germany so interesting for real estate investments in the wake of the Brexit?

Germany is attractive thanks to its strong economic success and its low unemployment rate. Its legal framework is also very reassuring on the safety of any contracts made here. Also not to forget relatively low prices on the local market, especially in former east-Germany in cities like Berlin, Dresden or Leipzig; those favorable conditions often lead international actors to invest in rental investments such as commercial plots or flats.

Sources : IVD, Carter Jonas*

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