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Photographer: Matthias Balk/picture-alliance/dpa/AP Images Photographer: Matthias Balk/picture-alliance/dpa/AP Images

Until recently, lawyers and accountants seeking a prestigious German address typically found their way to the cobblestone lanes and quaint squares of central Munich. These days, they’re more likely to choose scruffy Berlin.

Germany’s capital has surpassed Munich as Germany’s most popular office market as large companies expand in a city better known for its galleries and bars than its boardrooms and trading floors.

The Europacity construction site area with it's first building, the Tour Total Berlin, in the centre. Photographer: Matthias Balk/picture-alliance/dpa/AP Images

After years of high vacancies and cheap rents in Berlin, tenants signed leases for 335,000 square meters (3.6 million square feet) of space in the first half, a record for the city, according to BNP Paribas Real Estate. For the first time in decades, more space was leased in Berlin than in any other German city.

"We’ve significantly increased our footprint in Berlin” -- up 70 percent in the past 10 years -- while adding little space elsewhere in the country, said Thomas Loehmer, head of property at KPMG LLP. The capital “is very attractive to young professionals."

A growing share of Berlin’s desk-space is being occupied by lawyers, accountants and consultants in addition to the more typical coterie of app developers, journalists and lobbyists, according to BNP. Office rents climbed 18 percent in the past three years to 14.20 euros per square meter per month. The vacancy rate is the lowest since reunification and the lowest among large German cities.

Along the formerly industrial riverbank farther east known as Mediaspree, home to MTV’s German headquarters and Berlin’s biggest indoor-music venue, Daimler AG this year agreed to rent 18,000 square meters. In the western district of Charlottenburg, Deutsche Bank AG is adding space for 2,500 employees.

Plywood Fences

And on a former railyard once bisected by the Berlin Wall, cranes dot the skyline and plywood fences guide pedestrians through a maze of construction sites for a new business district called Europacity. On the 40-hectare plot around Berlin’s main train station, just across the Spree River from Chancellor Angela Merkel’s office and the Brandenburg Gate, drilling excavators punch holes into the mud and lobbies of just-completed buildings smell of paint.

The zoning plan calls for as many as 30 office blocks as well as apartments, restaurants, and shops in the area by 2020. Three buildings have been completed and another three are being built. In 2017, KMPG plans to unite its scattered local staff in a seven-story building at Europacity, while law firm White & Case LLP and property broker JLL have already moved in.

"Our view was that you couldn’t really go wrong in the center of the capital of Europe’s biggest economy," said Bruno Ettenauer, chief executive officer of Vienna developer CA Immobilien Anlagen AG, which acquired half the site in 2007 on a bet that Berlin’s floundering real estate market would recover.

A view of the Europacity area from the Total tower towards the Central Railway station. Photographer: Krisztian Bocsi/Bloomberg

It’s taken almost a decade for CA Immo to cash in, and while the value of the land has more than doubled, the company has had to spend millions of euros adding roads and other infrastructure.

With Berlin’s unemployment rate among the highest in Germany, there’s still substantial risk for office developers. The city has little industry aside from its nascent technology sector, keeping its economic output below the German average, government data show. None of the companies in the benchmark DAX stock index -- the likes of Daimler, Deutsche Bank, and Bayer AG-- are based in Berlin.

Because of these weaknesses, Berlin still lags behind Frankfurt, Munich and Hamburg by many measures. Monthly office rents top out at 23 euros per square meter in Berlin, versus 38 euros in Frankfurt and 35 euros in Munich, according to BNP. Construction, while growing, is still sluggish compared to other cities because low rents fail to offset the high construction costs.

Still, rising demand for leases and Berlin’s improving economy have spurred many investors to predict a strong future for the city.

"Berlin is cementing its position as Germany’s investment capital," said Andreas Wende, chief operating officer at Savills Germany. "Many foreign investors increasingly think of Berlin first when they come to Germany, not Frankfurt or Munich."

— With assistance by Elisabeth Behrmann