Darko stands behind an iron gate, his bare chest daubed in red paint with the words "victim of bank". Four floors above him Reza, an Iranian painter, leans out of the window to pull up a basket of provisions.

The artists are among 20 who have locked themselves into Tacheles, one of Berlin's last bastions of alternative subculture, and are fighting eviction ahead of plans to develop it as an office and luxury apartments complex.

"It will be a catastrophe for Berlin if this goes," says Darko, a painter from Bosnia who came to Berlin for a weekend, fell in love with Tacheles and stayed. "There are very few places like this anywhere in the world, particularly in the centre of a capital city and five minutes from the government quarter."

He is flanked by two black-clad security guards sent by the investor that is trying to clear the building.

Soon after the fall of the Berlin Wall the former 1930s department store in East Berlin was occupied by artists who saved it from plans to destroy it. It rapidly became a magnet for an international arts scene. While it has lost something of the edginess it enjoyed in its early days – when art lovers lounged around drinking beer in the garden – it remains a potent symbol of a free-thinking, artistic Berlin.

The Tacheles, with its trademark bright graffitied walls, a warren of bustling ateliers and workshops and gothic archways, has long since found its way into every guidebook.

Its demise 22 years after the collapse of communism would be a significant loss for a city whose Bohemian reputation is its biggest selling point, and further evidence, say critics, that Berlin is being gentrified beyond recognition.

"It's time for the citizens of Berlin to ask what kind of future we want," says Linda Cerna, spokeswoman for the artists. "Will we want to live in a city where everything has been sold or privatised and we just have shopping malls, gated communities and loft apartments?"

Tacheles is just the latest in a long line of public spaces that have been "lost" to private investors. At the same time rents are rising at a rate not seen since the end of the cold war while property investors are rapidly buying up chunks of a city where, unlike in most European capitals, real estate bargains are still to be found.

The developments have angered many Berlin residents and galvanised a growing band of anarchist protesters.

So it was hardly a surprise that there were objections last week to plans by BMW to set up an urban design showcase. A classic standoff between anti-gentrification protesters and the project managers – BMW together with New York's Guggenheim Museum – led to the proposals for the district of Kreuzberg, a traditional home for political activists, being scrapped after police warned that the scheme was under threat of attack by leftwing extremists.

Thomas Girst, BMW spokesman, announced the group was "leaving Kreuzberg because of the high threat level determined by the police". In a statement the Guggenheim expressed its disappointment that, as it saw it, its project had been misunderstood. "The foundation regrets having to make this decision, as the purpose is to create a space for public discussion, open to the widest possible range of views."

Kreuzberg, which was one of the poorest districts, has been hugely gentrified since reunification. Last year it had the highest rental cost rises of any Berlin district. Jakob Augstein, a prominent commentator, has noted that big firms are flocking to Berlin and effectively "privatising" public spaces. "This city is forever selling itself to the highest bidder... whenever anyone comes with the cash, whether a car firm, a fashion company, a mobile phone company, they're being allowed to claim anything they want from squares and streets to the Brandenburg Gate, you name it."

But Rüdiger Schaper, writing in the Tagesspiegel, said Berlin, which is bankrupt to the tune of billions of euros, can ill afford to turn away those prepared to invest. "The future cannot just consist of penthouses and underground car parks," he said. "But neither does it lie in littered open spaces and dilapidated buildings."