In big cities building land is becoming scarce as residential development rises sharply. The ceiling on prices will soon be reached according to experts.

Head of Frankonia Uwe Schmitz in front of Hamburg’s Sophienterrassen: Here 300 luxury apartments are being built

Germans escape to luxury developments

Prices for property in major cities rising

Since the financial crises residential property is still seen as a secure bastion for investors. So, it is no wonder that the price of residential property in prime locations in Germany’s major cities is rising and development land is becoming scarce. This is a blessing for Uwe Schmitz, chairman of the property developers Frankonia Eurobau, which has a building volume in the billions. His 100 employees have plenty to do keeping many projects on the go. Currently the company, with its headquarters in Nettetal near the boarder to the Netherlands, has projects in eight different locations at a total value of €1.2 billion. 280,000 square meters of net floor space are being planed and built. The 1,400 residential units that Schmitz is currently developing are all in the luxury sector. With concrete and glass instead of shares and debentures, well-heeled investors have rediscovered the value of property.

Frankonia’s two biggest projects are currently Sophien Terrassen in Hamburg which is costing €380m and Andreas Quartier in Düsseldorf at a price tag of €280m. These are high quality buildings for wealthy buyers. At the top of the range a penthouse costs €17,000 - €18,000 per square metre. Most of the apartments however are selling on average between €4,500 and €5,500 per square metre – a price that in the current climate of rising interest from buyers is typical of the market.

One of Frankonia’s most ambitious projects is the building on Schinkel Platz in Berlin. Here luxury apartments are planned between the Bauakademie (International Building Academy) and Schinkelkirche (Schinkel Church) and near Kronprinzenpalais (Crown Prince Palace) with a view of the Berlin Stadtschloss (City Castle).

The challenge is in the architecture. What will Berlin’s chief planner allow? Will modern architecture be allowed in such a venerable location? It is all still to play for; an architectural competition is running at present to find the best design solution.

Another ambitious project is at Düsseldorf’s Medienhafen, where Frankonia will soon start construction on residential properties along side architecturally striking office towers. “I’m holding back when it comes to buying new land at the moment because it’s all too expensive” admits Schmitz however. In Berlin, where Frankonia are just completing a residential project in Behrenstraße in Mitte, there is still plenty of building land available.

The situation is quite different in Munich or Hamburg, “I was always the brave one in the business”, says the construction engineer. Now with prices running to €3,000 - €4,000 per square metre of land in prime metropolitan locations one could get cold feet. “You always have to build what the area dictates”, says Schmitz. “For me it’s all about sophisticated architecture which should last for 100 years. And with that you have to be looking at a realistic profit margin of 10-15%, that’s not too high”, he added.

But what can the market take? According to Schmitz the ceiling price for premium residential property is between €20,000 and €30,000 per square metre, no more than that. Even wealthy buyers are price conscious. However the term “luxury building” means nothing to Schmitz. “We’re in the high quality segment.” The trick is to create an attractive new residential quarter out of a neglected area. This was achieved in Lenbach Gärten in Munich where old university buildings were falling down. And Sophienterassen was built on the site of an abandoned army barracks in Hamburg. When the new buildings are finished a certain amount of social envy occurs in the neighbourhood. The critics seldom remember the ruins that once occupied such city wastelands, comments the head of Frankonia.

The current increased demand for high quality residential property is also due to very low interest rates, explains Schmitz. “Out of the big house!” is also the motto for many buyers. In the most cases these are celebrities, business owners or top managers for whom running a large residence is too much trouble and who prefer to move into the city.

Schmitz doesn’t want to talk about a general residential property boom. One has to look at different locations separately. However there is certainly a boom in Berlin. Berlin is the only real cosmopolitan city in Germany and the demand is endless. The planned rent price regulations by the new German Government will not work at all. There has to be a lot more building. By the time developers get planning permission three years have gone by. “You won’t solve the housing problem in many cities that way,” says Schmitz

5 February 2014