WORLD PROPERTY CHANNEL ®

Hamburg's Reeperbahn area, infamous and famous at the same time, has become a commercial real estate developers' delight in Germany's second largest city.

Infamous because of its internationally-known red-light district.  Famous because it helped the singing Beatles get their start.

Now Hamburg's harbor sector is experiencing a building boom and developers are selecting construction sites they previously would have ignored.

The Wall Street Journal reports that near the district's most aggressive prostitutes and brazen strip clubs, developers are replacing an old bowling alley with two towers, nicknamed Dancing. The 22-story and 24-story buildings will include 33,357 square meters (359,052 square feet) of office space as well as a hotel and nightclub. The €180 million ($257.5 million) project is expected to be completed next summer.

Developers are expected to deliver about 77 new projects between 2011 through 2013, ranging from small projects to large office towers, according to Savills research.

The surge reflects Hamburg's unusually low vacancy rate, which remained between 7% and 9% since 2003, according to Savills. By comparison, 18% of Frankfurt's office space was vacant in the first quarter.

One of the biggest areas under development is known as "Harbor City," a multiuse area near the city center and within sight of where cruise ships will continue to pick up passengers, according to the WSJ.

The mix of residential, office and retail space as well as the new university campus, about 70% completed, will take over much of the old docklands, and is where the new Philharmonic Hall now juts out of the Elbe River in the vague shape of a ship.

Developers hope the tribute to the city's rich maritime history will be to Hamburg what the landmark opera house is to Sydney.

Experts say Hamburg, home to about 1.7 million people and about an hour from the North Sea, has survived the global economic downturn better than some German cities in part because of its diversified industry, the WSJ reports.

Hamburg's prime rents stayed between €23 and €25 a square meter ($3.07 and $3.42 a square foot) over the past five years, and average rents increased from €12.65 a square meter ($1.69 per square foot) in 2007 to €13.87 a square meter ($1.85 a square foot) in 2010.

According to the WSJ, Hamburg's employers are more diversified than some other large German cities, such as Berlin and its reliance on politics and Frankfurt with its commitment to finance.

Logistics companies are some of the biggest employers, led by aviation and shipping, and most of Germany's largest publishing houses are based there.

Independent banks, information-technology firms and print media and other publishing companies round out the major categories for employment. Unilever and SAP AG recently moved into new developments, says Lars-Oliver Breuer, Hamburg-based head of investment with Savills.

The WSJ notes Hamburg's commercial real-estate market is popular with both domestic and foreign investors. At Harbor City, Deutsche Bank's real-estate subsidiary RREEF, spent €100 million on the 25,700-square-meter Unilever building for one of its open-ended funds after it was completed in 2009.

The building was a boon for the fund, says Ulrich Steinmetz, a RREEF managing director who is responsible for the open-end real-estate fund Grundbesitz Europa.  Unilever signed a 15-year lease, which is relatively long for a German office property.

Unilever uses the building as headquarters for its German, Swiss and Austrian operations. 

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