German tax income jumps in 1st quarter

Germany’s Finance Ministry says the government’s tax income rose sharply in March and saw a healthy overall first-quarter rise as Europe’s biggest economy picked up momentum.

The ministry said Tuesday that Germany’s tax take totaled some 55.4 billion euros ($76.4 billion) last month — 7.2 percent higher than a year earlier, when unusually persistent winter weather weighed down the economy. In the first quarter, the tax income climbed 3.7 percent to 140 billion euros.

Low unemployment has helped bolster the government’s finances — income tax receipts were up 7.5 percent in March.

The Finance Ministry said indicators point to a “broad-based economic upswing.” Factory orders and industrial production have been growing and business confidence is high, despite some worries about the possible impact of the crisis in Ukraine.

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Berlin Mega-Mall Shows Surging Retail Need: Real Estate

When Harald Huth bought the former Wertheim department store site in central Berlin, he planned to build a mall with 200 shops for about 400 million euros ($550 million). Three years and almost 1 billion euros later, he’s set to open Germany’s biggest shopping center, with 270 stores.

The developer’s growing ambitions reflect Berlin’s emergence as a shopping destination faster than new stores can be built. Retail rents in the capital climbed the most among Germany’s big cities last year, driven by a surge in tourism and a growing population.

“In the past 10 years, Berlin has developed excellently,” Huth, 45, said in a telephone interview. “The tenant demand we received gave me confidence that the project could be bigger.”

Germany’s biggest metropolis has been something of an emerging market in the decades of rebuilding that followed the fall of the Berlin Wall in 1989. Though Berliners’ incomes are still lower than the national average, the city is beginning to attract brands like Apple Inc. (AAPL) and Forever 21, which opened their first stores there last year.

“Frankfurt and Munich and Hamburg are wealthier, but Berlin is on the ascendancy,” said John Bason, chief financial officer at Associated British Foods Plc (ABF), the London-based company that’s preparing to open its second Primark discount clothing store in Berlin. “There are many, many consumers within the catchment area of Berlin, by far enough to give us crowded stores.”

Beating Germany

Berlin retail sales adjusted for inflation climbed 5.8 percent last year, according to the city’s statistics office, compared with a rise of just 0.1 percent in Germany as a whole.

Retailers are drawn by the city’s growth and emergence as one of Europe’s most visited cities, said Ruediger Thraene, head of Berlin at broker Jones Lang LaSalle Inc. (JLL)

“It’s been a lot more noticeable in the past two or three years that international labels want to open shops in Berlin,” Thraene said. “Berlin was a fashion hotspot in the 1920s and 1930s, but since the fall of the Wall a lot has had to happen for it to be in that position again.”

Berlin’s reputation as a fashion destination has been burnished by the semi-annual Berlin Fashion Week trade show, which the government began organizing in 2007. Highlights from the last event in January included shows at the Brandenburg Gate.

Berlin’s population has climbed 3 percent since 2005 to 3.4 million, about double that of second-placed Hamburg, and the government expects another 7 percent rise by 2030. The city had 11.3 million visitors last year, 50 percent more than in 2007, according to the Berlin Trade Federation. Visitors accounted for about a quarter of all retail spending, the Federation said.

Rent Surge

Prime retail rents in the capital rose 13 percent in 2013 to an average 270 euros a square meter per month, according to data compiled by Bulwiengesa AG. Last year, Berlin displaced Hamburg as the city with the third-highest shop rents, after Frankfurt and Munich.

The rent gains contrast with Berlin’s purchasing power, which is 50 percent less than Munich’s and 30 percent below Frankfurt’s, according to data from Nuremberg-based market research firm GfK SE. Berliners had an average individual disposable income of 17,000 euros in 2011, the most recent year for which figures are available, according to the Berlin Statistics Office. While that’s a 30 percent gain since 1991, it still trails other major cities. Londoners, by contrast, had the equivalent of about 25,000 euros available to spend, according to data from the U.K. Office for National Statistics.

Bigger Berlin

Some real estate investors remain skeptical about Berlin, even as its population and tourism grow. Deutsche Euroshop AG, Germany’s biggest publicly-traded owner of shopping centers, has none in Berlin.

“Berlin has lots of people, but they’re not wealthy,” said Euroshop Chief Executive OfficerClaus-Matthias Boege. “Berlin is a city of artists, civil servants and lobbyists. This is not where Germany’s economic power is coming from.”

While Munich has the country’s highest concentration of companies listed on the benchmark DAX stock index and Frankfurt is the largest banking center in continental Europe, Berlin is Europe’s only capital where disposable income lags behind the national average, according to data from the Berlin-based DIW Economic Institute.

Huth’s Mall of Berlin will open at the end of May with 76,000 square meters of retail space, apartments, a hotel and 1,000 parking spots. When it’s finished in 2015, it will have 130,000 square meters of shops, beating Ruhr-Park in the industrial city of Bochum as the country’s biggest mall. The shopping center will displace the Gropius Passagen, built by Huth in 1994, as Berlin’s largest.

Gal Yana, chief executive officer of San Marino-based Rephase Cosmetics, which is opening the company’s first German store at the Mall of Berlin, said he expects most of his business to come from out-of-towners.

Mall Sprawl

“You don’t get the same tourist frequency you have in Berlin in any other German city, unless you’re talking about Frankfurt airport, maybe,” Yana said.

Shopping malls already are more common in Berlin than other German cities, reflecting efforts by developers to add retail space quickly after reunification. Berlin has 36 malls, according to the Cologne-based EHI Retail Institute, and will get at least three more this year. By comparison Frankfurt, with about a fifth of the population, has five.

Bikini Berlin, an upscale center with designer boutiques, opened this month in a landmark 1950s property overlooking the zoo in the city’s western center. Furniture magnate Kurt Krieger has agreed to build affordable homes and a park around a former freight train station in the northern district of Pankow, in return for permission to build the area’s biggest mall. Huth, not yet done with the Mall of Berlin at Leipziger Platz 12, has started building another center with 120 shops on the site of the former Schultheiss brewery in Moabit.

Old Scars

The Mall of Berlin site mirrors the changing and often tragic fortunes of the city. It housed the flagship of the former Wertheim department store chain, owned by the Jewish family of the same name, until the Nazi government seized it in 1937. World War II bombing raids destroyed the building, along with much of the city, and the construction of the Wall left the site in no-man’s land between East and West Berlin.

German retail chain KarstadtQuelle AG ended up owning the property after it was sold by the government, sparking a decade-long legal battle with the family’s heirs. In 2007 Karstadt paid an 88 million-euro settlement to the heirs. Wertheim’s former vaults housed the Tresor techno nightclub after the Wall fell, until 2005.

High Gain House Investments GmbH, Huth’s development firm, and London-based Arab Investments Ltd. bought the property in 2011 for about 89 million euros from Luxembourg-based Orco Property Group (ORC) SA. At the time, it was the largest undeveloped site in central Berlin.

Tourist Trade

Huth plans to take advantage of tourist traffic around Leipziger Platz, a five-minute walk from the Sony Center at Potsdamer Platz and within 15 minutes of the Checkpoint Charlie gate between the former east and west Berlins and luxury shopping street Friedrichstrasse with high-end stores like Galeries Lafayette.

“In this part of Berlin, tourists and Berliners have always expected retail,” Huth said. “There was retail here 100 years ago and it’s a central spot that’s suitable for this kind of use.”

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Berlin gripped by property boom as Germans turn their backs on renting

Citizens fear rocketing house values, fuelled by investors, will end age-old German tradition of long-term home rental

A few yards from the Berliner Ensemble theatre, which he helped to found in 1949, Bertolt Brecht sits on a chair, gazing with a wry smile over the river Spree. It’s a shame that the bronze statue can’t move, because it would be interesting to see what the Marxist playwright would have made of the building site behind his back.

On the northern side of Brecht’s square, workers are putting the finishing touches to the most extravagant building project in the German capital: a nine-floor residential block in Mitte district conceived by the British property developer John Hitchcox and French designer Philippe Starck, with wide balconies, a red-leather-clad lobby and a spa area decorated with glass chandeliers. A concierge will do “anything from booking their flights to putting cartons of milk in their fridges”, as the sales manager Alexander von Albert sells it.

The building complex, called Yoo Berlin, is set to open in the summer – 90 out of 95 flats have already been sold. The penthouse at the very top, which went for €4.1m, is being touted as the most expensive in the city.

Currently, Berlin’s priciest flat is a bit of a mess, as the owner has decided to rip out the work already done and bring in his own designer. Strolling through the debris, Hans-Peter Koopmann, who manages publicity for the development, points out sights on the horizon: “That’s the Reichstag, there’s the Victory column, and from this angle you can look straight into Angela Merkel’s living room.” No other residential properties will obscure its new owners’ view: the district council specially lifted a ban on high-rise flats for Yoo.

Compared with London prices, €14,137 per square metre may not sound much – residents of One Hyde Park are willing to fork out four times the amount – but it certainly puts a lie to the first half of Berlin’s self-assigned catchphrase “poor but sexy”.

Looking at the capital from up here, a line from Brecht’s The Threepenny Opera, which long ago premiered at the Berliner Ensemble next door, sounds a more appropriate motto: “Listen closely to Mack the Knife / the bulging pocket makes the easy life.”

Attitudes to property are changing in Germany, especially so in the three biggest cities – Munich, Hamburg and Berlin. Over centuries, the capital fostered a reputation as a renter’s paradise, where tenants paid little and were well protected by the law. In 2011 only 16% of Berliners owned their own place, compared with 50% in London.

But rents are rising quickly in Berlin, at almost twice the national average rate. At the moment they may still be half of those in Munich, but Nikolas Jeissing, head of the commercial branch of estate agents Engel & Völkers, suggests the capital will eventually catch up. “In the long run I imagine that it will be more expensive to rent in Berlin than in Munich,” she says.

The German coalition government may be planning to introduce rent controls in the bigger cities, but Jeissing believes they will only “slow down the trend, not stop it”. Increasingly some young families are forced to calculate if they would not be safer buying their next flat than renting precariously.

In addition, with interest rates remaining low across the eurozone, a nation that traditionally saves a tenth of its income has had to learn to look elsewhere to park its savings. And with the economy still unstable elsewhere in Europe, German property has begun to look safer than ever: betongold – “concrete gold”, some in Germany call it, though Koopmann of Yoo quibbles with the term. “Gold is actually quite a volatile investment – property in the centre of Berlin, on the other hand, is as safe as it gets.”

Half of Yoo Berlin’s buyers are foreign investors, from Britain, America, France and “very few Russians”. Many of them already own “a flat in London, maybe an apartment in Singapore”, said sales manager Von Albert – many of the flats behind Bertolt Brecht are likely to remain empty for most of the year.

But whether foreigners are the main drivers of Berlin’s betongold boom, as some analysts have claimed, is questionable. Agencies may now rank Berlin in third place on the European investment market, after London and Rome, and the parents of Spanish, Italian or Greek twentysomethings may be more familiar with the German capital than they were a decade ago, but Jeissing of Engel & Völkers puts foreign investors’ share in the retail investment rise at roughly 30%, considerably down from before the financial crisis.

“The big Anglo-Saxon investors like Goldman Sachs discovered Berlin in around 2004, but now they are increasingly retreating and are more likely to look at Spain or Greece,” she says.

James Guerin, the Irish CEO of Berlin-based Natulis property group, agrees: “Even though a lot of money is flowing into the city in the form of property purchasers from countries where the local economy is weak, like Greece, Italy, Spain, this is not having a big impact on the business here except for some luxury projects. In fact, there were more foreign buyers in the mid-90s.”

Guerin’s company is building flats on the site of a ruined old factory, on Scharnhorststrasse north of the central station. Only 10% of his buyers come from abroad. Most of them are upper-middle-class Germans, many of whom are buying property for their children.

Walking around the building site, looking at the cranes working on the open spaces nearby, there is a sense that Berlin is busy closing up remaining gaps. “Time is running out to buy in Berlin,” Guerin says. Once all the empty plots are built on, will Berlin go the way of Paris or London, with amateur developers doing up older properties to sell for a profit and the poorer part of the population being pushed out to the suburbs?

Film-maker Katrin Rothe has personal experience with aggressive developers. In her award-winning 2013 documentary Betongold, she recorded her struggles with a landlord who was trying to push tenants out of their block of flats to make way for buyers. By the end of film, Rothe gave in to the pressure and found herself wondering whether home ownership may not be the future for Berlin residents.

Talking to her now, she sounds reinvigorated. “In the end I decided that it’s worth fighting for cheap rents in Berlin. This city has a history of doing this differently. We should heed the warning of the Spanish property crash: if you buy property, you can quickly lose a sense for the real value of a home,” she says.

Even James Guerin agrees that exponential increases comparable with those in London are unlikely. “Germans are more prudent in property purchasing. There is no property ladder here. They tend to buy later in life and hold their properties long term. It’s primarily a home and secondarily an investment.”

Most German banks require around 20% deposit and tend to offer 10-year fixed interest rates, which deters buyers from reselling after a few years. Unlike Britain, Germany still has a strong tradition of local associations that offer legal advice to tenants. Tenants’ rights are still stronger than those of buyers, so that investors who buy occupied flats could well find themselves not being able to make use of their new acquisition.

“I am hopeful that the idea of property as a social service rather than an asset is embedded in Berlin’s mentality,” says Reiner Wild of the Berlin tenants’ association. “We’ll do our very best to make sure that our city doesn’t go the way of Paris or London.”


Wish you were here: Berlin is bracing – but delightfully laid-back and relaxing

These days, the German capital a vibrant city, packed with artists, and an intellectually bracing destination for a quick fix of culture and modern history

In November, it will be a quarter of a century since the Berlin Wall fell.

These days, it’s a vibrant city, packed with artists, and an intellectually bracing destination for a quick fix of culture and modern history.

But at a bar beside the Spree river, or even at one of Berlin’s outdoor beaches in summer, it’s delightfully laid back and relaxing too.

25Hours Bikini Berlin

Sandwiched between the Kufu?rstendamm shopping area and Tiergarten Park, this is a trendy, groovy hotel with 149 rooms and suites packed with art, attitude and hammocks.

It’s designed around a ‘playful urban jungle’ theme, and some rooms have huge windows looking straight into the monkey enclosure at Berlin zoo.

Food choices included an Airstream trailer serving up burgers and a bakery with a wood-burning stove.

Best of all, the rooftop Monkey Bar and Neni restaurant offer 360 ? views over the city and the zoo.

The deal: Rooms from £86 a night

Soho House

A Bauhaus building in the Mitte district, this outpost of the London members club has a rooftop pool and 65 rooms that channel urban cool.

You don’t have to be a member – but weekday stays are more affordable. Rates rocket in a capitalist way at weekends.

The deal: From £108 a night


Huettenpalast’s owners call this hotel an ‘urban campground’.

You stay in vintage caravans and cabins in an old factory, surrounded by birch trees and picnic tables. Showers are shared.

But there are more conventional hotel rooms available too.

The deal: From £41 a night.

My Plus One

A one-room apartment in Neukoelln made entirely from recycled materials – so Berlin 2014!

You’ll even find a drawer with ping- pong bats and a frisbee so you’ll fit in with the locals.

Oh, and they’ll hook you up with one to give guided tours, if needed.

The deal: From £100 a night.

Property Could Yet Drive German Boom

Say it quietly, but could Germany be on the brink of a boom?

Thanks in no small part to revived interest in property, the domestic German economy is picking up even if the rest of the world turns lackluster. House prices are rising fast and construction is gearing up to meet demand. Home ownership is low as are household debt levels, so there’s scope for considerable leveraging up. What’s more, interest rates are well below where they should be for an economy at full employment like Germany’s, adding further incentive for people to borrow.

German industrial output beat expectations in February. Manufacturing geared towards the domestic economy has been doing particularly well, even as demand for German goods among emerging markets stutters. Construction has been strong, averaging 1.6% growth over the past four months. Retail sales have been on the up and consumer confidence is holding at its strongest since well before the financial crisis. Overall, the data point to an annualized GDP growth rate of just under 3% for the first quarter.

And there are reasons to believe German domestic demand will keep going, not least because housing has started to boom. German house prices have been galloping along, rising at around 6.25% last year.

But that’s from a low base. German house prices have consistently lagged GDP growth during recent decades, only just starting to catch up in the past couple of years. What’s more, Germans seem to be developing an appetite for property having long ignored the asset class.

And their capacity to borrow against housing is substantial relative to other European economies.

By the end of 2012, Germans had an average gross debt to income ratio of 85%, according to Eurostat. That compares to 132% in the U.K. and an astounding 250% in the Netherlands. The difference is that Germans are much less likely to have mortgages. And they don’t have mortgages because they don’t tend to own their homes.

Only 53% of Germans are owner occupiers and nearly half of those own their houses outright. The European Union average is 70% owner occupied. The U.K. is marginally less than average at 68%, though nearly two thirds of owner-occupied homes are mortgaged. Home ownership among the Dutch is about the same as the U.K., but with even more borrowing to buy–some 90% of owner-occupied homes are mortgaged.

The Bundesbank is already worried that prices have got ahead of themselves, arguing that in some cities are overvalued by as much as 25%.

But with the European Central Bank setting interest rates to suit the single currency’s bombed-out economies, borrowing looks especially attractive to Germans now. Breugel, a Brussels-based think tank, figures that, were they set for the German economy, interest rates would be four percentage points higher than they are now.

The Bundesbank could well become considerably more worried over the coming years.

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German industrial production posts another rise

Government data show that German industrial production grew for the fourth consecutive month in February, underlining expectations of a pickup in Europe’s biggest economy.

The Economy Ministry said Monday that production rose 0.4 percent compared with the previous month and it expects figures for the full first quarter to be “appreciably above” Germany’s performance in last year’s fourth quarter. In year-on-year terms, production was up 4.8 percent in February.

Germany’s order pipeline also is in good shape. Data released last week showed that industrial orders were up 0.6 percent on the month in February.

The government’s panel of independent economic advisers last month raised its 2014 growth forecast for Germany to 1.9 percent from 1.6 percent. Last year, the economy grew by only 0.4 percent.

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Next Silicon Valley? Berlin’s battle to be a tech hub

The world is full of Silicon Valley wannabes, invariably dubbed “Silicon Something”, from Silicon Glen in Scotland to Silicon Savannah in East Africa to Silicon Gulf in the Philippines, but none of them approaches the real deal in northern California.

But Berlin does have some of the factors which might lead it in the right direction, namely bright people who attract more bright people from all round the world plus low rents on property where ambitious companies can set up and expand.

Take SoundCloud. It set up in Stockholm but moved to the German capital and took off.

It’s a website where people share sounds – a kind of YouTube for the ears.

Bands use it to put up new recordings; politicians, including President Obama, use it for distributing their spoken thoughts (from speeches to podcasts); and ordinary people use it to share everyday sounds, from the sound of a baby gurgling to the first birds of Spring.

The idea came from two people with music backgrounds who collaborated in Stockholm. They realised they needed to share but also discuss the sounds they were creating, so they developed the platform to do it: SoundCloud.

And then when they got ambitious, they moved because they felt that Berlin had the right, vibrant music scene. One of the men, Alexander Ljung, is now the company’s chief executive and the other, Eric Wahlforss, is now the chief technical officer.

They flit between their offices in London, Sofia, San Francisco and New York to get the right combination of access to capital, talent and ideas, but with Berlin as the base.

Embracing risk

David Noel, SoundCloud’s “VP of Community” says one factor helping Berlin become more like Silicon Valley is that the attitude to risk is changing.

“If you fail in Europe, you have the stigma of failure that you carry around. When I look at Berlin that is changing, so we’re not talking about failure as a bad thing but we’re talking about failure in a way that it lets us become better next time”.

The tech companies which seem to thrive in Berlin often, like SoundCloud, seem to be about social networking.

The social game developer Wooga is based in Berlin. Research Gate, a networking website for scientists, is also based in the German capital.

And so is Zoobe. It’s a company which has developed a phone app so people can record a message which then synchs with an animated cartoon character such as a Smurf or Street Fighter Ryu or Rudolph the Reindeer.

The animated message can then be sent to a friend. The dragon or rabbit or Smurf appears on the friend’s phone, reading out the message in the sender’s voice.

Just as SoundCloud was devised by people with an audio background who saw possibilities, so Zoobe was developed by a man with a video background who saw possibilities.

Founder and chief executive Lenard Krawinkel told the BBC: “Berlin is sexy at the moment. And it’s cheap so you can rent space cheaply. You can employ people for far less money than in San Francisco – and even for far less money than in Asia.”

However, a few companies making it easier for people to communicate with each other does not add up to the new Silicon Valley.

Berlin is going in the right direction but it’s got some way to go, according to Ciaran O’Leary, a partner in the Early Bird venture capital firm: “It’s still a very young and small ecosystem but it’s on an amazing trajectory. I think Berlin still needs a couple more years to really be one of the top one or two places in the world.”

Long way to go

In a recent global ranking of cities with the most tech start-ups founded in the last 10 years which have gone global or received significant amounts of capital from the big funds, the top three spots were occupied by California’s Silicon Valley, with 201 start-ups, New York (144) and London (90).

Berlin had 27, just ahead of Bangalore on 26 and Sao Paulo on 21.

What Berlin may have is that indefinable quality which is an aptitude for innovation.

Since the fall of the Wall in 1989, the city has been reinventing itself. The vibrant alternative culture which thrived in West Berlin remains in place in the united city.

Property is also cheap compared with London, New York or San Francisco.

The average annual cost of a workstation in an office in Berlin, including maintenance costs, taxes and rent, was $8,410 at the end of last year, compared with $14,050 for New York and $14,620 in the City of London, according to a report published by the global property company DTZ.

Low rents do not a Silicon Valley make. But bright people with ambition might.