West Berlin Back in Style as Fashion Brands Abandon the East

Photographer: Adam Berry/Bloomberg

Many of the shoppers are tourists, who come to visit Kaufhaus des Westens, Germany’s largest department store. Close

Many of the shoppers are tourists, who come to visit Kaufhaus des Westens, Germany’s... Read More

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Photographer: Adam Berry/Bloomberg

Many of the shoppers are tourists, who come to visit Kaufhaus des Westens, Germany’s largest department store.

West Berlin’s Kurfuerstendamm, the city’s answer to Paris’s Avenue des Champs Elysees, is in fashion for the first time since Germany’s reunification as luxury brands snub the east, pushing rents higher.

Apple Inc. (AAPL) may be the next company to appear on the 4-kilometer (2.5-mile) boulevard known as Ku’damm, in the capital’s most expensive shopping district. The iPhone maker will open a store there, its first in the German capital, this year, a person with knowledge of the plan said. The person asked not to be identified because the information is private.

The decision by fashion brands such as Hermes (RMS) and Louis Vuitton (MC) to focus on west Berlin has shifted attention away from Friedrichstrasse, the eastern strip that attracted most retail investment after the fall of the Berlin Wall in 1989. That helped rents for the best space on Ku’damm to climb the most in 15 years in 2012, an increase that was more than twice the rate for Munich’s top shopping street, CBRE Group Inc. (CBG) estimates.

“Berlin’s west has always been important, but the east was new and waiting to be discovered,” said Andreas Malich, head of Berlin retail leasing at broker CBRE. “For a long time, nobody knew which way the old lady of the west would go.”

Apple’s new store will be at a former movie theater at Ku’damm 26, across from the Hard Rock Cafe, the people said. The building has a facade resembling a Greek temple, in contrast to the modern structures that dominate Friedrichstrasse. Alan Hely, a London-based spokesman for the company, declined to comment on plans for a Berlin store.

Bowie’s Memories

Ku’damm has had Berlin’s biggest concentration of luxury shops since the 1920s. Kaufhaus des Westens, the city’s most famous department store, is also nearby, on Tauentzienstrasse. The store, known as KaDeWe, is cited by David Bowie in a new song about his memories of living in the city during the 1970s.

Foreign investors are trying to profit from the west’s revival by acquiring some of its most prestigious properties. In October, Axa Investment Managers SA and Norway’s sovereign-wealth fund agreed to buy Neues Kranzler Eck, a retail and office complex on Ku’damm, for about 380 million euros ($511 million).

Last month, Austrian real estate company Signa Holding agreed to acquire KaDeWe itself in a 1.1 billion-euro deal that also included 16 other German shops. Signa already owns Oberpollinger, Munich’s oldest department store.

Falling Yields

Those two deals contributed to a seven-fold increase in the volume of commercial-property investments in the area around Ku’damm last year to 1.05 billion euros, according to data compiled by broker Jones Lang LaSalle Inc. (JLL) During that time, yields on those investments dropped to 4.5 percent from 4.75 percent, indicating a gain in prices.

The demise of communist East Germany after 40 years transformed a city divided by a wall and rival political and economic systems that had split Europe since the end of World War II. Thousands moved to the east part of the city as developers razed neglected and war-damaged ruins to build shopping malls, glass skyscrapers and multiplex cinemas.

Louis Vuitton, a unit of LVMH Moet Hennessy Louis Vuitton SA, and Hermes International SCA each opened a branch on Friedrichstrasse, a street that was almost completely rebuilt during the 1990s. They were joined by Bang & Olufsen (BO), the luxury stereo maker, and Audi, which opened a car showroom.

Other retailers preferred Alexanderplatz, home of the city’s largest mall, or Potsdamer Platz, a futuristic collection of skyscrapers built on the former death strip where East Germans had been shot trying to escape.

‘Too New’

Now the tide is turning, with the west getting a makeover as the east loses some of its new-frontier allure.

“For some people, the east was too clean and too new,” said Thomas Hohwieler, head of German real estate at developer Strabag SE. (STR) “You want a city that’s evolved naturally, that’s not just all gloss.”

Hermes left Friedrichstrasse in 2010 and opened a branch in KaDeWe to add to a refurbished store on Ku’damm. Louis Vuitton followed the same strategy, closing its Friedrichstrasse shop last year. Audi AG (NSU) and Bang & Olufsen A/S have also moved away from the street in the eastern Mitte neighborhood.

“Our customers in the west are more loyal than those in the eastern part of the city,” Hermes said at the time, according to Berliner Morgenpost. “For long-term customer relationships, the locations on Kurfuerstendamm and in KaDeWe are more attractive and more lucrative.”

Forever 21

U.S. clothing chain Forever 21 Inc. and Mulberry Group Plc (MUL), a British luxury-handbag maker, have chosen west Berlin for their first stores in the city. Forever 21 plans to open a shop on Tauentzienstrasse, where there’s a higher concentration of affordable chains such as Hennes & Mauritz AB (HMB) and Foot Locker Inc. (FL) than Ku’damm.

More pedestrians walk on Ku’damm and Tauentzienstrasse than on any other streets in Berlin, according to data compiled by Jones Lang LaSalle.

“It’s one of the most sought-after retail destinations in the country,” said Linda Chang, global marketing director at Forever 21.

The influx of young Germans to east Berlin raised the local population’s purchasing power significantly. Even so, residents of Charlottenburg to the west are wealthier than those in Mitte, with an average monthly net income of 1,675 euros per month compared with 1,475 euros, according to the Berlin-Brandenburg Statistics Office.

Higher Rents

Retail rents are also higher in the west. The monthly cost of leasing retail space on Ku’damm climbed 14 percent last year to an average of 230 euros a square meter, according to data compiled by CBRE. Rents on Friedrichstrasse were little changed at 150 euros in 2012, the broker estimates, while those on Munich’s Kaufingerstrasse, by comparison, climbed 6.5 percent to 330 euros a square meter.

“The demand for space has become a lot more international,” said Uwe Timm, whose company manages the Europa Center mall, just off the eastern end of Ku’damm. New leases for space in the building have risen 19 percent since 2010, he said. Claire’s Boutiques Inc. and Adidas AG are among the retailers that became tenants last year.

As the city’s west rebounds, the area around the Zoologischer Garten railway station -- best known as the setting for the film Christiane F. about young heroin addicts in the 1970s -- is undergoing a radical facelift.

Waldorf Astoria

Strabag is trying to exploit the increased demand for commercial space by overseeing the construction of Upper West, a complex of offices, shops and homes near Ku’damm that will be dominated by Berlin’s third-tallest tower at 118 meters (387 feet). Nearby, Hilton built a limestone and glass 232-room Waldorf Astoria hotel overlooking the Berlin Zoo that opened in December.

The transformation has a long way to go. The station, at the foot of the Waldorf tower, greets commuters with a mix of homeless people and fast-food shops. Across the street from the hotel is a sex shop. Developers had neglected this part of Ku’Damm in the years following reunification as they pursued projects in the east.

“There is movement coming into this burned out corner,” said Christoph Maeckler, the architect who designed the Waldorf. “Brooklyn isn’t what it was in 1979 either and Hilton saw the opportunity in Berlin.”

Bikini Berlin

Bayerische Hausbau GmbH, a Munich-based developer, also aims to tap demand for commercial real estate in the area by building a 50,000-square-meter complex comprising shops, a hotel and a cinema overlooking Berlin Zoo. The Bikini Berlin project, named after a building on the site that dates from the 1950s, is due to be completed in the second half of this year.

In the east, reconstruction is so intensive that it’s hurting retail, said Andreas Kogge, head of Berlin retail leasing at Jones Lang. The impoverished East German communist government didn’t fully rebuild its sections of Berlin after the war, leaving swaths of the city ripe for development when the Wall fell. Construction of a new subway station on Friedrichstrasse has closed off two blocks in its center to traffic and made it more difficult to reach by public transportation.

Between Friedrichstrasse and Potsdamer Platz, the developer High Gain House Investments GmbH is working on Berlin’s largest commercial project, the Leipziger Platz shopping mall, due to be completed in 2014.

“The east has the problem of never-ending construction,” Kogge said. “The Ku’damm has always had the advantage of being a world that had already come into its own.”

To contact the reporter on this story: Dalia Fahmy in Berlin at dfahmy1@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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