Office market top-7 3Q2017

Heading for new record

Press release | Hamburg

It looks as if this year will end with another very good result for the office-letting markets in Germany’s top 7 locations. The experts from German Property Partners (GPP) expect the total volume of lettings to reach 3.8m m² by the end of 2017. Take-up of office space in the first three quarters - totalling 2.9m m² - was already 9% higher than in the same period of the previous year. With the exception of Cologne and Stuttgart the letting volume increased considerably at all locations. Year on year the vacancy rate fell in every city and by the end of the 3rd quarter the average across all 7 top locations had fallen to 4.4%. In all top 7 cities the volume of office space available for new tenants was more than one fifth lower than twelve months previously.
“We now find there is a shortage of space in the sought-after locations and size categories in all the cities. And in view of the fact that the already high level of demand for offices is still rising, contrasted with only moderate growth in lettable space, this state will not change in the months to come,” says GPP spokesperson Guido Nabben. In all the top 7 cities the providers of co-working or business centre facilities have been prominent new lessees this year. Nabben adds that, “All in all, the growth of demand for space is spread over all types of industry; in conjunction with good economic statistics, that is a strong indicator that this increase is set to continue for the foreseeable future.”
As a consequence of how supply and demand are moving apart, rents have risen further. Especially dynamic growth was seen on the Berlin market, where the average square-metre rent is now €18.20/m²/month (+17% year on year) and rapidly approaching the level seen in Frankfurt (€18.90/m²/month). As far as the premium rent is concerned, the national capital now heads the table, having increased by 12% to €29/m²/month, whereas the premium rents in the other top 7 cities rose by comparatively little, or stayed the same (Düsseldorf and Cologne) or contracted slightly (Munich).
Take-up of space: Lack of space hampers stronger growth
At the end of the first three quarters take-up of space in Düsseldorf totalled 288,800 m², a full 29% higher than the level of the previous year. So far, eleven agreements for more than 5,000 m² have been recorded in the city, capital of the state of North Rhine-Westphalia; four contracts involved over 10,000 m² each. The latest contract, and to date the biggest, was signed by the city of Düsseldorf for a new building at Konrad-Adenauer-Platz which is to house the central library on 20,250 m² of floor space.
In Frankfurt the take-up of office space rose especially strongly; year on year the first three quarters closed 21% higher at a total of 439,300 m². At the end of nine months the take-up of office space is thus already higher than the totals for the years 2014 and 2015. With tenants seeking large office suites still in the market, the 4th quarter could prove to be very dynamic in Frankfurt. The biggest rental agreements of the 3rd quarter were signed by the Landesbank of Hesse for 26,500 m² in mainblick³ in the Kaiserleistrasse and by the City of Frankfurt for 14,400 m² on the Mainzer Landstrasse/Kleyerstrasse. In Frankfurt certain segments of the market are now also reporting shortages.
The office market in Berlin remains, as in the opening quarters of the year, on track towards a new record high. Take-up of 635,000 m² at the end of nine months represents growth of 17% compared with the same period a year before. So far in 2017, 22 agreements for more than 5,000 m² each have been recorded in the capital and of these lets, nine involved 10,000 m² or more. A considerable proportion of demand is from foreign countries or from enterprises already located in the city but wishing to expand. Since large office suites are particularly rare in existing buildings, firms are increasingly likely to sign for space in new-build developments. The result is a permanently high ratio of pre-let space in buildings under construction or at the planning stage; consequently, the rising number of completions will not greatly add to the volume of available space.
Hamburg has also reported a record turnover on the market for office space. Take-up of 465,000 m² for the first three quarters of 2017 represents an increase of 12% compared with the same period of the prior year and the best result since records were started. The agreement for 34,000 m² of office space signed in the 3rd quarter by publishing house Gruner + Jahr (Am Hannoverschen Bahnhof, HafenCity) was already the second let of over 30,000 m² in the current year.
As is the case in the other top 7 cities, competition for suitable office space has become keener in Hamburg, too. Prospective tenants often have little choice among available properties, because in most cases at least two parties at once are discussing a potential agreement. As a result the city likewise has a very high ratio of pre-let properties, 61% of space in new developments is already taken.
Unlike previous years, no quiet period was registered on the Munich office-letting market in the summer of 2017. At the end of nine months a total of 602,000 m² had been newly let, 9% more than in the same period a year ago. The excellent third-quarter result owed much to the let of 13,000 m² to GEWOFAG (Gustav-Heinemann-Ring). There was a very pronounced decline in available space in Munich.
Despite the drop of 15% to a total of 224,000 m², business was very brisk on the office-letting market in Stuttgart. The shortage of space is felt more acutely in this city on the River Neckar than in any of the other top 7. The vacancy rate is heading for the 2% mark, and has thus reached a critical figure. Shortages are now becoming noticeable in the peripheral locations as well as in the city centre. Project developers are correspondingly active. Even so, this will not have an appreciable effect on the market until at least 18 to 24 months hence.
The 16% decline in take-up of office space in Cologne to 260,000 m² by the end of the 3rd quarter is primarily due to the fact that the previous year’s figures were skewed by the big lease signed by Zurich Insurance. 2017 still has the potential to become one of the best years out of the past ten. The first three quarters featured a mix of lets in the smaller and larger-sized sectors. Design Offices signed the largest new lease in the 3rd quarter for 9,000 m² of space (Untersachsenhausen).
Rents: Premium and average both higher
Rising rents are the logical consequence of the shortage of offices reported in all the top 7 cities. Here too, Berlin topped all other growth results; average rents rose by 17% to €18,20/m²/month and the premium rent rose by 12% to €29/m²/month.
In Hamburg and Munich the average rents for office properties rose year on year by moderate amounts of 1% and 3% respectively, whereas they increased by more in Düsseldorf (+9 %), Frankfurt (+7 %) and Stuttgart (+5 %). Part of the rise in Frankfurt stemmed from some large lets in expensive tower blocks (Taunusturm, Omniturm, FOUR). In Düsseldorf and Stuttgart the reasons behind growth in the average rent are lets in new-builds and projects still under development plus some expensive lets in CBD locations. In 2016 the large premises taken by the Zurich Insurance in Cologne had caused an unusually big rise in the average rent. This explains why the average rent now shows a year-on-year decline of 7%.
In terms of premium rents, Stuttgart came second only to Berlin with an increase of 5%. This growth is attributable to several rental agreements for top-priced office space in the City. In third and fourth place are Hamburg (+4 %) and Frankfurt (+3 %). In Düsseldorf and Cologne the premium office rent in the 3rd quarter of 2017 remained on a par with the prior year, whereas in Munich a slight drop of 2% was noted. However, compared with 2015 the current value is 11% higher.
Vacant space: Dramatic decline in all 7 cities
With the stock of office space totalling 90.54m m² at the end of the 3rd quarter, the reserve of available space in the top 7 cities was a mere 4m m². Year on year this represents an additional drop, from 5.6% to 4.4%. In Berlin the shortage of premises became especially noticeable following a 38% year-on-year reduction in the amount of vacant space. In Stuttgart, Munich, Cologne and Frankfurt the amount of empty office space available at the end of the 3rd quarter of 2017 was more than one fifth lower than it had been twelve months before. The drop was appreciable, but not as steep, in Düsseldorf (11%) and Hamburg (8%). This year and next year will see a total of 2m m² added to reserve capacity, whereby it is not clear how much space in these new office blocks will be available on the open market.
Outlook: Potential to set a new record
Nabben anticipates that, “The year 2017 will be another exceptionally good year on the office-letting market in the top 7 cities. Hamburg looks about to set a new record, Düsseldorf might even top its record of 2015 if the potential large lets in the pipeline are completed. The office markets in Berlin, Frankfurt, Cologne, Munich and Stuttgart will also achieve letting volumes far higher than their average figures.” In all top 7 cities the supply of available office space will probably contract further, whereby Berlin, Stuttgart and Munich are heading for a situation in which all property is let. That will push office rents in the top 7 locations even higher.
“At this point in time, we do not foresee any fundamental changes over the next eighteen months,” continues Nabben. “Especially since special factors such as Brexit, which is relevant for Frankfurt, or the possibility of an accelerated switch from the production of conventional cars to electric vehicles which is relevant to car city Stuttgart could even result, in the short term, in greater demand.”
Top 10 known agreements | top 7 locations | Q1-3, 2017
City Project/property Tenant/owner-occupier Rental area (ca. m²)
STU Meisenweg, Leinfelden-Echterdingen Daimler AG (owner-occupier) 50,000
BER Puschkinallee 52 Bundesanstalt für Immobilienaufgaben (Federal real estate) (owner-occupier) 47,000
BER Koppenstraße 8 Zalando 42,000
HAM Wendenstraße (project, City South) Olympus 34,500
HAM Am Hannoverschen Bahnhof (project, HafenCity) Gruner + Jahr 34,000
BER Cuvrystraße 51 Zalando 34,000
FFM mainblick³, Kaiserleistraße 29 Hessische Landesbank 26,500
DUS KAP 1, Konrad-Adenauer-Platz 1 (project) City of Düsseldorf (municipal library) 20,250
DUS Hansaalle 1-3 (project) HSBC Transaction Services 20,100
HAM Überseering 35 (City North) University of Hamburg 19,750
Source: German Property Partners

Top 7 locations | Q1-3, 2017
Take-up of space
in m²
465,000 635,000 288,800 260,000 439,300 224,000 602,000 2,914,100
against prior yr in %
+12 +17 +29 -16 +21 -15 +9 +9
Premium rent
in €/m²/month
26.00 29.00 26.50 21.50 39.00 24.00 35.00 -
Average rent in €/m²/month 15.00 18.20 15.20 13.75 18.90 13.70 16.45 -
Stock of office space in millions m² 13.59 19.22 7.56 7.80 11.63 7.85 22.90 90.54
in m²
619,100 470,000 680,000 310,000 1,056,200 168,800 650,000 3,954,100
Vacancy rate
in %
4.6 2.4 9.0 4.0 9.1 2.2 2.8 4.4
Completions 2017 + 2018 in m² 423,000 388,700 235,000 185,000 220,900 245,800 305,000 2,003,400
Source: German Property Partners

Press contact

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Britt Finke

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