Prospects for commercial real estate in eastern Germany are improving, according to TLG Immobilien.

The firm’s Property Market in Berlin and Eastern Germany 2014 report notes an improving outlook for eastern German cities, with rents stable and – in some sectors – rising asset prices.

Second and third-tier German cities are increasingly the focus of investors seeking alternative investment locations. The five eastern German states reported increased investment in commercial real estate between 2009 and 2012, when investment volume rose from €320m to around €1.87bn. Following a slight decline in 2013 to €1.36bn, volumes for the first half of 2014 totalled €1.37bn.

Berlin and eastern German cities such as Dresden, Erfurt, Jena, Leipzig, Magdeburg, Potsdam and Rostock are attracting strong attention from investors, the report said.

With stable rents in Berlin, Potsdam, Dresden and Leipzig, prices in some sectors are on the rise.

Berlin remains the hotspot for German and international investors, with investment volumes at a ”persistently high level”. Around €3.6bn was invested in the Berlin real estate market – 25% higher than the average for the last five years.

“Significant population growth, falling unemployment, greater retail purchasing power and higher hotel guest-night figures – all these factors confirm the positive momentum and its knock-on effects on the office, retail and hotel property markets,” said Niclas Karoof, TLG Immobilien management board member.

The development process in the east, combined with the boom in Berlin, is exerting a strong influence on real estate markets in eastern Germany.” 

Separately, Prognos economic research institute said the likes of Leipzig, Dresden, Rostock, Erfurt and Jena are ”highly attractive both as residential and business locations”.

Real estate investment in areas with above-average medium to long term economic and technological prospects offers a ”scenario for success”, Prognos said.