Knotel Joins the Berlin Boom

Berlin is booming. Investment capital, startups and established companies all keep pouring into the capital city, helping transform it into one of the most competitive commercial real estate markets in Europe today.

For these reasons, Knotel in July announced the acquisition of Ahoy!Berlin, a flexible workspace operator in Berlin’s historic Mitte district. To herald Knotel’s arrival and celebrate the entrepreneurial community in the German market, we hosted a “Building a Unicorn” kickoff event on Wednesday night at Panama, with founders from dozens of the city’s top startups and established global companies.

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“In the years ahead, there will be thousands and thousands of Knotels,” said CEO Amol Sarva in brief remarks to the crowd. “We will create a place where your company can do great things.”

Last year, venture capital investment in Germany rose 88 percent to €4.3 billion, with Berlin-based startups drawing 70 percent of the funding. In fact, over the past couple of years, more VC cash has poured into the city than any other European city, including London and Paris. It’s now home to tech stalwarts like Google, Soundcloud, Facebook, Airbnb and Apple, and it has become a hub of startup activity with young companies, coworking spaces, startup festivals, accelerators, mentor groups and more than 400 large VC firms. Those investors made more than 33,160 investments in Berlin companies, totalling $3.9 billion in just the past two years, according to CrunchBase.

Berlin’s hotbed of entrepreneurial activity is set against the backdrop of an effervescent economy in Germany and within the wider Eurozone. Output growth last year reached 2.2 percent, the highest since 2011, and unemployment has hit 3.4 percent, a level not seen since reunification.

Indeed, Berlin’s history makes it a unique city in Europe. For 28 years, the Berlin Wall divided the city into West and East, which remained communist. When the Wall fell in 1989, the East side of the city raced to catch up with the West. Tax incentives led to a flurry of new office buildings and apartments, but it took time for the people who were expected to come at the end of 1990 to actually arrive.

Well, they have arrived. Buoyed by a population of 3.5 million, a solid German university talent pool and a stable political climate, people are now flocking to the city’s startup scene.

This economic vitality will put pressure on available office space, even as construction happens throughout the city. Berlin’s commercial real estate vacancy rate hit 1.7 percent, down from 7.8 percent in 2010. And average rents during the first half of 2018 increased a whopping 22 percent year-over-year.

Currently, 557,000 square meters of office space are under construction in the city, according to BNP Paribas, but only a quarter of that space will be finished by early 2019; most of it has already been pre-let. Vacancy rates are expected to decline again, and rents to rise. This is a city desperate for solutions to an increasingly difficult commercial real estate environment.