Berlin Is Booming
With a world-class airport and major interest from new investors, Germany’s capital of cool is becoming a capital of commerce
by Boyd Farrow
November 4, 2022
Many of the young people sipping flat whites and exploring the modish boutiques on Alte Schönhauser Strasse in Berlin’s central Mitte district on a recent balmy weekday afternoon had not yet been born in 2003, when Klaus Wowereit, then the city’s mayor, famously declared that the bankrupt German capital was “poor but sexy.” Since then, the city has certainly capitalized on that slogan. For two decades, sustained by an exuberant arts scene and creative nomads lured by the hedonistic lifestyle and cheap rent, Berlin has flaunted its reputation as Europe’s epicenter of cool. Indeed, in May 2021 the German federal parliament officially classified its legendary techno clubs—which attract around three million tourists and contribute $1.5 billion to the local economy yearly—as cultural institutions, extending them the same tax breaks and cachet as museums and opera houses.
Yet with far less fanfare, Berlin has also been metamorphosing into a cosmopolitan business city, wooing investors, companies and talent from all over the world—as is evidenced by the relentless gentrification of prewar buildings from Prenzlauer Berg in the East to Kreuzberg in the West and the new glassy towers sprouting up along the banks of the Spree River. These days, the rooftop terrace of the Soho House private members’ club is as likely to be filled with venture capitalists searching for the next Google as glitter-smeared clubbers looking for the next party.
According to a recent report by Ernst & Young Global, Berlin was Germany’s leading start-up location in 2021, lassoing a record-breaking $10.3 billion, or almost 60 percent of the $17.1 billion venture capital invested in the whole of Germany—outpacing Bavaria, with its muscular aerospace, automotive and logistics industries, by some margin. The lion’s share of Berlin’s inward investment went to the nascent financial technology sector, which attracted $3.7 billion, and e-commerce start-ups, which pocketed $3.6 billion. Money is also pouring into high-tech health care, energy technology and transport and mobility sectors.
Moreover, Lukas Breitenbach, spokesperson for economic development agency Berlin Partner, reckons the city is still pretty sexy, too. “Last year, for the first time, Berlin was voted best city to launch a company, according to the latest Startup Heatmap Europe survey,” he says. “Overtaking London is no blip. Brexit may have changed the game in Europe, but Berlin’s development started several years ago, with the creation of innovation clusters. Things are now scaling up.” Breitenbach notes there are more than 600 start-ups in the biotech, pharma and med-tech sectors, dotted around the city’s 40 large research institutes and universities, and similar numbers involved in software and analytics, mechanical and electrical engineering, chemicals and plastics processing and the food sector.
It is Berlin’s booming fintech sector that is really catching fire, though, evolving from a haven for shadowy sellers of crypto tokens to a buzzy ecosystem of high-profile start-ups such as Trade Republic, which lets people buy and sell shares, exchange-traded funds (ETFs) and derivatives via a mobile app. “Many of these fintech start-ups are democratizing traditional financial activities, which is very Berlin,” says Breitenbach. “Suddenly, Frankfurt is no longer Germany’s only finance capital.”
Yet perhaps the most exciting transformation is in the rapidly overlapping energy technology and transport, mobility and logistics sectors. Last year, Mercedes-Benz Group revealed it will produce its first in-house electric motor at the company’s oldest plant, at Berlin-Marienfelde, while investing at least $98 million over the next six years to transform the 120-year-old site into a campus to develop and implement AI-enabled software for its entire global production network.
Tesla has outlined even more ambitious plans for the German capital. In March, the California electric car giant opened Gigafactory Berlin-Brandenburg—its first manufacturing plant in Europe—which could produce up to 500,000 vehicles a year, beginning with the Model Y. Tesla has also announced plans to establish a 100 GWh battery manufacturing site for its custom-designed 4680 cells, although its notoriously erratic CEO, Elon Musk, is reportedly now also looking at Texas, to qualify for new U.S. electric vehicle and battery tax credits. Musk has also spoken of creating an engineering and design center in Berlin, possibly sited at Gasometer, a 262-foot-high monument to industrial architecture located in Berlin-Schöneberg’s EUREF business campus, a pilot project for the transition to sustainable energy and networked mobility.
“Obviously the Gigafactory is a game changer for Berlin,” says Breitenbach. “The whole supply chain is shifting here, which means the city is well placed to be the auto capital of the future.”
This is in step with Berlin’s broader commitment to a circular economy, according to Rainer Hoe-nig, the CEO of Betteries, a five-year-old start-up that upcycles electric vehicle batteries into multipurpose battery packs. “For outfits like mine, close ties to other companies in the energy tech sector are essential for driving innovative product development,” he says. “There is huge potential for the greater Berlin-Brandenburg region to become a cell manufacturing hotspot, not only with the presence of Tesla and Mercedes Energy but also BASF, which is building a prototype battery recycling plant.”
While the market for used electric vehicle batteries is still in its infancy, Hoenig believes around seven million may be released by 2025—which will still contain enough energy to supply a city like Berlin for roughly 50 days. By 2030, there might be 200 million used batteries. There may also be a quarter of a million new inhabitants by then. The Berlin Senate is currently forecasting that the city’s population will nudge 3.75 million—up from today’s 3.5 million—over the next eight years, with many of them young, educated and entrepreneurial. Figures from Berlin Partner show that 83 businesses relocated to the city last year: 38 from elsewhere in Germany; 20 from the rest of Europe and Russia; 13 from North, Latin and South America; and the remainder from the Middle East, Asia and Oceania. A total of 153 residency permits were issued for 124 companies, of which 55 were from North America, and 38 from the rest of Europe and Russia.
This year, Berlin’s growing technology hub is already benefiting from bright young talent leaving Moscow and Saint Petersburg following the Russian leader Vladimir Putin’s assault on Ukraine. In June Deutsche Bank began moving hundreds of IT staffs in Russia to the German capital, reportedly offering to relocate all its 1,500 employees, plus their families.
Other companies from countries with crisis-riven economies are also moving their operations to Berlin over the next few months. Trendyol, the Turkish e-commerce site, recently opened a Berlin base—its first operation outside of Turkey—and by December it will have hired more than 200 employees to expand its business in Germany and the rest of Europe.
What is likely to boost every Berlin business over the next decade, of course, is the new airport, Berlin Brandenburg, which was finally inaugurated in October 2020—when nobody was flying because of Covid—after nine years of delays, and 30 years after its initial conception. Incorporating architectural nods to neoclassicist Karl Friedrich Schinkel and Bauhaus, this steel-and-glass portal is seen as crucial to Berlin’s future status as a world-class business city.
Up until now, because the city’s two previous airports were so dinky—a legacy from World War II—two-thirds of all business travelers heading to Berlin had to change flights at Frankfurt. In March American Airlines became the first U.S. carrier to offer direct flights to the German capital, with daily routes from New York. “Being so underserved by international flights has definitely held Berlin back,” says Breitenbach. “However, everything is now coming together at the right time. In 10 years I am absolutely sure that Berlin will have more direct flights from the Middle East, Asia and the U.S. It is a necessity.”
Breitenbach is convinced, though, that if the airport helps to finally turbocharge Berlin into a 21st-century business metropolis, the city will not lose the charms that have been drawing creatives and dreamers over the past century. “If anything, the pandemic really made people appreciate the localism and laid-back quality of Berlin. People have taken stock of the city’s greenness and quality of life,” he says. “Berlin will evolve—it always has—but the qualities that define the city will not disappear. Even if Berlin were to become a gigantic business city, it will still be the least gigantic business city in the world. It will still be the most lovable, craziest, unthinkable city we know.”