Office market top-7 2Q2017

Figures from German Property Partners (GPP) show that by the end of the 1st half of the year take-up of office space in Germany’s top 7 locations had risen year on year by 11%. Office take-up totalled 1.83m m² in the 1st half of 2017, about half of this amount being registered in the 2nd quarter. “With record results from Hamburg and Berlin plus very good letting figures in the other five cities, the top 7 returned take-up that was even higher than the half-year result in 2016,” says GPP spokesman Björn Holzwarth commenting on the office lets.
 
Take-up of space: Berlin and Hamburg set new records 
The biggest year on year increase was posted in Berlin, where a 34% rise took total take-up to 410,000 m², the highest figure seen in the past ten years, thus placing the city first among the top 7. “Several sizeable deals, including the sale of the former Vattenfall headquarters, a 47,000 m² office block purchased by the Federal real estate corporation Bundesanstalt für Immobilienaufgaben for their own use at Puschkinallee 52, plus Zalando’s rental agreement for 34,000 m² of office space at Cuvrystrasse 51 and numerous transactions for offices in the mid-sized segment were instrumental in producing a total that placed Berlin ahead of Munich,” says Holzwarth.
 
And in Hamburg growth of 25% resulted in a record 300,000 m² of office take-up of space. Unlike the prior year, the 1st half of 2017 was notable mainly for its agreements involving large amounts of space. One such agreement in this category was the 2nd-quarter decision by Olympus Deutschland to rent 34,500 m² of office space for its headquarters in the planned new build in City South.
 
Major known agreements for 10,000 m² or more | top 7 locations | Q1-2, 2017
 
Take-up of space in Düsseldorf rose by 24% to 205,000 m². This renewed and significant year on year increase owed much to several agreements for 5,001 m² of space or more, including that signed by two banks, HSBC (20,100 m²) and Bankhaus Lampe (13,000 m²).
 
Frankfurt repeated the good performance of the prior year. Take-up of office space rose by 6% to 249,200 m². The agreement signed by Clifford Chance for 11,780 m² in Junghofstrasse 14-16 was the only let involving over 10,001 m² of office space, but turnover in the 5,001 m² to 10,000 m² sector doubled. “At present we are not seeing any agreements in Frankfurt in connection with Brexit and are not expecting to see any surge between now and the end of the year. Moreover, these rental agreements are more likely to be for properties ranging in size between 1,001 m² and 5,000 m², adds Holzwarth.
 
A year on year rise of 6% was noted for Stuttgart too. The 1st-quarter transaction by Daimler for 50,000 m² of owner-occupied space played a huge role in this result, accounting for 43% of the total take-up of 115,000 m².
 
With a barely noticeable fall of 1% to 389,000 m², take-up in Munich remained very similar to the excellent result in 2016. Following several agreements for large amounts of space in the 1st quarter (Deutsche Pfandbriefbank: 14,000 m², Publicis Pixelpark: 13,000 m²) the 2nd quarter was somewhat weaker, but several potential clients are known to be seeking large premises.
 
The total in Cologne was 160,000 m², which translates into 22% less space taken up in the city. The biggest transaction of the 2nd quarter was the construction start of a new headquarters for STRABAG which will provide 17,000 m² of office space on Siegburger Strasse. “Demand for office space remains high, even though the figures point to a decline, but one must remember that in 2016 Zurich insurance took a very large amount of space,” says Holzwarth in his analysis.
 
Rents: Average rent in Berlin now higher than in Munich 
The average rent for office space rose at almost all top 7 locations, with the steepest increases in Berlin and Stuttgart (both 10 %). The average rent in the German capital reached €17.10/m²/month and thus overtook the rate in Munich (+4%, €16.60/m²/month). Düsseldorf posted an increase of 5% and Frankfurt’s rate rose by 6% to €18.60/m²/month; this is therefore still the city with the highest average rent. Rent remained stable in Hamburg at €14.80/m²/month (down -1%).
 
Only in Cologne did the average rent decline by a double-digit figure (-12%) to €13.60/m²/month. Between 2013 and 2015 average rents in the city remained between €12.40 and €12.70/m²/month, but in the 2nd quarter of 2016 it had shot up to €15.40/m²/month. “Overall, the rents for office space in Cologne are trending upwards. The enormous amount of space taken by Zurich Gruppe Deutschland in the 2nd quarter of 2016 accounted for the increase in both turnover and average rent. This was very much an outlier on the Cologne market,” says Holzwarth in explanation.
 
Likewise, premium rents rose further in almost every top 7 location. The steepest rise was seen in Berlin, where a 14% increase took the premium rent to €28.50/m²/month, followed by Hamburg with +8% (€26.50/m²/month) and Stuttgart with +5% (€24.00/m²/month). Posting an increase of 3% and the highest rate of €39.00/m²/month, top offices in Frankfurt were considerably more expensive than in Munich (€33.50/m²/month). Due to the lack of prime properties in central parts of the Bavarian capital, the premium rent fell by a modest -3% in Munich. In Cologne there was a slight rise of +1% to €21.50/m²/month and Düsseldorf maintained its high level of €26.50/m²/month. 
 
“The biggest demand is for new builds, and these desirable properties command top rents. In view of the limited availability of space, nothing short of a marked increase in speculative construction activity will improve the situation on the rental market. As this is not to be expected before 2019 at the earliest, we must continue to reckon with modest rises in rents,” says Holzwarth.
 
Vacant space: New all-time low 
A mere 4.9% of the total amount of office space in the top 7 locations was available at short notice on the date German Property Partners compiled its figures. The vacancy rate thus sank compared with the same period a year ago by 0.9 percentage points. “Each of the top 7 locations is, without exception, affected by diminishing levels of empty space,” says Holzwarth. “The vacancy rates in Stuttgart and Berlin at 2.7 per cent and 2.9 per cent respectively have hit all-time lows and in the medium term serve to fuel rent increases on the fiercely contested market for offices.”
 
The estimated volume of completions for 2017 and 2018 is, according to information available to German Property Partners, 2.03m m² spread over some 200 new developments. As in previous surveys, the highest levels of new build activity are found in Berlin and Hamburg.
 
Outlook
“Our forecast is that take-up in the top 7 locations will total 3.7m m² by the end of 2017 and thus fail to match the the prior year’s record result of 3.9m m². The reason is that in cities such as Stuttgart and Cologne unusually large premises were let or acquired in 2016, and comparable transactions are not in the pipeline at present. The good economic climate in Germany does, however, promise ongoing and brisk demand for office space in the foreseeable future,” predicts Holzwarth. “Due to a lack of available space and low levels of construction activity it will, however, become impossible to satisfy requests for large premises as we would like. Improvements in this tight situation and stable rents are only likely in the medium to long term, provided there is no change in the current economic confidence and the associated strong demand for space. Global events or trends can, however, bring progress to a halt within a short time.”
 
Top 7 locations | Q1-2, 2017
Source: German Property Partners