Office market top-7 4Q2017

Record exceeds expectations

Press release | Hamburg

At the close of the year 2017 a new record result is announced for Germany’s top 7 office letting markets. German Property Partners (GPP) report that a total of 4.1m m² of office space had been taken up by the end of the year, topping both the prior year’s result of 3.9m m² and the forecast figures. Compared with 2016, a 4% rise in value was noted. The take-up of office space was appreciably higher in each of the seven bar Cologne and Stuttgart. Despite ongoing heavy demand, GPP expects a lower year-end total for 2018. This is due to persistently low supply. At the end of the 4th quarter the vacancy rate again slipped in all top 7 locations; office space in Munich, Berlin and Stuttgart is close to being fully let. By the end of the year the vacancy rate in the top 7 locations was 4.1%. This represents a further year-on-year drop of 1.2%.
“The take-up of office space was the best in over ten years and passing the four-million mark was an historic first. Thanks to low vacancy rates, many markets did not have enough office space to satisfy demand. It was possible to compensate for the mismatch between supply and demand - especially for top quality new build space - by renting space in new builds under development and refurbished premises. In view of the overall stability of the economy, the market for office letting in Germany will continue to boom in 2018,” remarks Guido Nabben, spokesperson for GPP.
In 2017 the operators of co-working space or business centres were very active in the pursuit of new premises to rent. Apart from in Stuttgart, there was an enormous rise in their share of take-up of office space. The industry’s total of 214,000 m² represented some 5% of the total take-up of space, or nearly three times the amount rented in 2016. “Renting space in a co-working facility or business centre can offer companies a rapid solution to their space problems and allow them to remain in the city centre,” says Nabben.
This played a big role in Berlin, where, due to extremely high demand and a dearth of available offices, rents have risen more than in any other top 7 location. Slight declines in average rents were registered only in Cologne and Hamburg, a tiny slippage in premium rents was noted in Munich.
Take-up of office space: Berlin inches past Munich
By the end of 2017, office-letting in Frankfurt had reached an all-time high of 728,300 m², which was 30% above the figure for 2016 and on a par with the property market’s high-water mark in 2000. In 2017 leases for more than 10,000 m² of space accounted for nearly a quarter of total office lettings. The greatest demand was for space in the mid-sized segment of 5,001 to 10,000 m². The biggest single lease was that signed in the 4th quarter by railways operator Deutsche Bundesbahn for 52,600 m² of space in two development projects (The Brick and a neighbouring highrise) on Europaallee. The large take-up figure is also attributable to the providers of co-working space or business centre operators. Whereas in 2016 they took leases on no more than 7,000 m², that figure had risen to 40,000 m² by the end of 2017. Observed brisk demand from this segment, including GPP clients, will continue to enliven the market in 2018.
In Hamburg the take-up of space rose by 16% in 2017, reaching a new record level of 640,000 m². The bulk of turnover came from many agreements for mid-sized premises. In the 4th quarter only one contract for over 10,000 m² of space was signed in Hamburg. Here too, WeWork and similar companies were considerably more active than in 2016. This sector’s share of take-up rose more steeply in Hamburg than in any other top 7 location - from 7,000 m² to 50,000 m². Since 80% of space in the new builds completed in 2017 had been pre-let or constructed for an owner-occupier and the pre-letting rate for this year and next has already reached 60%, a shortage of available space will continue to dominate the market in Hamburg.
Year on year 15% more office space was taken up in Munich, bringing the total to 878,000 m², of which 275,000 m² was recorded in the 4th quarter alone. Apart from unabated, high demand, an extension to building no. 1 of the BMW research and innovation centre considerably boosted the final result. But even discounting this owner-occupier outlier, the actual letting figures in the 4th quarter were some 200,000 m² and thus roughly equivalent to the prior year’s. Available space was in even shorter supply in the city area, and the environs too are increasingly feeling the squeeze.
The year-end total for Düsseldorf was 358,700 m² of office lets. The total is thus 8% higher than in 2016. GPP noted twelve agreements for more than 5,000 m² of space, compared with four the previous year. HSBC Transaction Services was responsible for the biggest transaction in 2017, signing an agreement for some 20,100 m² of space in a new build at Hansaallee 1-3 in the 2nd quarter. The City sub-market posted total take-up of around 82,200 m² and thus regained its premier ranking among sub-markets, closely followed by the left bank district Linksrheinisch/Seestern with 78,800 m².
The office market in Berlin surged forward to the best result of the 7 locations and total take-up of 880,000 m², thus placing ahead of Munich. Compared with the same period a year ago, the total rose by 7% to its third record result in succession. Take-up was driven higher because a great many large office suites were let and owner-occupiers increased their 3.1% share of the market (2016) to 12%. Online retailer Zalando is expanding rapidly in Berlin, accounting for 125,000 m² of total take-up; a further 63,000 m² was attributable to co-working space providers and business centre operators. There was still considerable demand from abroad. By the end of the year the number of agreements for more than 5,000 m² had risen to 32 and eleven of these involved over 10,000 m² of space.
Office take-up in Cologne fell by 30% to 310,000 m²; this was expected as the year 2016 had set a record due to the outlier transaction with the insurance company Zurich Versicherung which took 60,000 m² of office space. Other reasons behind the decline were a weak 4th quarter and the lower number of contracts for large office suites. In 2016 Cologne registered six rental agreements for more than 10,000 m² each, but in 2017 only two such were signed. Despite that, a large number of smaller and medium lets combined to give the cathedral city its third-best result of the past ten years.
In Stuttgart the take-up of office space declined by 38% year on year to 270,000 m². This large drop is a response to the exceptional result in 2016, when owner occupiers accounted for some 132,000 m² of the total and the auto industry took an above-average amount of new space. In 2017, by contrast, owner-occupiers accounted for a mere 56,800 m². Additionally, the number of agreements involving 10,000 m² or more plummeted to three only. Of all the top 7 locations, Stuttgart is the most badly affected by a lack of space, both in the city centre and in peripheral locations. With a vacancy rate of 2.1% at the end of the year, Stuttgart is practically fully let.
Rents: Shortages lead to further price rises
As a result of tight supply and a shortage of vacant space, almost all the top 7 locations report rising office rents in 2017. The biggest leap was seen in Berlin, where the average rent rose by 18% to €19.00/m²/month and the premium rent rose by +9%, thus reaching €30.00/m²/month for the first time. “Two other reasons, apart from the mismatch between supply and demand, are driving up office rents in the top 7 locations: as owners and landlords pay ever higher land prices and construction costs they pass these increases straight on to their tenants,” says Nabben.
After Berlin, the biggest increase in average rents was the +13% posted in Frankfurt. The average rent was €20.30/m²/month at the end of the year, partly due to a number of expensive rentals in the banking district. Munich (+9%), Düsseldorf (+7%) and Stuttgart (+6%) all reported good single-digit rates of increase. In Hamburg rents remained practically unchanged, slipping by 2% against the prior year. In Cologne the average rent fell by 3% but this was due to the lower number of agreements for large amounts of top-priced space compared with the boom year of 2016. In view of developments in recent years, the Cologne office-letting market has entered a phase of rising rents.
In terms of premium rents, Stuttgart posted a 6% rise, just behind Berlin. Increases were also noted in Frankfurt (+3%) and Düsseldorf (+2%). However, in Hamburg and Cologne, the premium rents for office properties showed no year-on-year change. The decline in Munich was tiny, a 1% drop to €35.00/m²/month. This second-highest premium rent after Frankfurt (€39.50/m²/month) owed much to large agreements signed by Amazon and WeWork for space in the “Oskar” building located in the CBD at a rental cost of some €34.00/m²/month. 
Vacant space: New low
With the total stock of office space including sub-let space standing at 90.7m m², the reserve of available space in the top 7 locations has fallen further to total only 3.7m m² at the end of the 4th quarter. This translates into 4.1% of the total stock. The most dramatic decline in office space available at short notice was seen in Berlin with a contraction of 39%. Munich (-31%) and Stuttgart (-24%) also struggled with appreciably reduced amounts of vacant space. The other top 7 locations saw vacancies drop by between 18% (Frankfurt) and 15% (Hamburg).
259 office new builds are scheduled for completion this year and next, offering a total rental space of around 2.5m m². A majority of this space has, however, been pre-let or is being constructed for an owner-occupier.
Outlook: No improvement in sight
“We do not see any radical new trends on the office markets in the top 7 locations. Vacant space will continue to decrease in 2018. In view of burgeoning demand and the low rates of completion scheduled for this year, speculative new builds would possibly serve to steady office rents but would not ease the situation in the short to medium term,” says Nabben.
Clients in Cologne, Düsseldorf and Frankfurt are still looking for large suites of offices, which may result in agreements in 2018. “Considering that supply is becoming ever shorter, it is unlikely that this year’s take-up totals in the top 7 office-letting locations will match the record results of 2017. Nevertheless, the office-letting business is set to have a good year because the stable economy and good labour market will continue to fuel demand for office space,” forecasts Nabben.
Top 10 known agreements | top 7 locations | Q1-4, 2017
City Project/property Tenant/owner-occupier Rental area (ca. m²)
FFM The Brick, neighbouring highrise development, Europaallee (Europaviertel projects) Deutsche Bundesbahn AG 52,600
STU Meisenweg (Leinfelden-Echterdingen project) Daimler AG (owner-occupier) 50,000
BER Puschkinallee 52 Bundesanstalt für Immobilienaufgaben (Federal real estate) (owner-occupier) 47,000
FFM Mainzer Landstrasse 49 Deutsche Bundesbank 44,400
BER Koppenstrasse 8 Zalando 42,000
BER Stream, Tamara-Danz-Strasse 1 Zalando 40,000
HAM Wendenstrasse (project) Olympus Deutschland GmbH 34,500
HAM Am Hannoverschen Bahnhof (project) Gruner + Jahr 34,000
BER Cuvrystrasse 51 Zalando 34,000
FFM mainblick³, Kaiserleistrasse 29 Hessische Landesbank 26,500
Source: German Property Partners (GPP)
Top 7 locations | Q1-4, 2017
Take-up of space
in m²
640,000 880,000 358,700 310,000 728,300 270,000 877,600 4,064,600
against prior yr in %
+16 +7 +8 -30 +30 -38 +15 +4
Premium rent
in €/m²/month
26.00 30.00 27.00 21.50 39.50 24.30 35.00 -
Average rent in €/m²/month 15.20 19.00 15.35 13.70 20.30 13.70 16.90 -
Stock of office space in millions m² 13.63 19.23 7.51 7.80 11.64 7.85 23.00 90.66
in m²
580,200 430,000 630,000 300,000 1,018,100 167,000 580,000 3,705,300
Vacancy rate
in %
4.3 2.2 8.4 3.8 8.7 2.1 2.5 4.1
Completions 2018 + 2019 in m² 327,000 711,000 217,000 240,000 366,800 290,400 380,000 2,532,900
Source: German Property Partners (GPP)

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