April 22 (Bloomberg) -- 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. 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, 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.”
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.
“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.
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.
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 Officer Claus-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.
“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.
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 SA. At the time, it was the largest undeveloped site in central Berlin.
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.”
To contact the reporter on this story: Dalia Fahmy in Berlin at email@example.com