• Office space take-up in the Top 5 markets up 19% in the first quarter of 2016 compared with the prior-year period

• Letting take-up significantly higher than the year-earlier result, especially in Berlin, Frankfurt and Düsseldorf

• Munich reports stable take-ups as second strongest market after Berlin, as opposed to Hamburg where the shortage of major rentals pushed the results below the 100,000 square metre mark

• Vacancies fall by almost one million square metres over the last twelve months – vacancy rate at 7% in the Top 5

• Prime rent in Berlin climbs by 11% over the course of the year – average rents rise, above all in Düsseldorf, Berlin and Munich

• Availability of large contiguous space in inner-city locations narrowing, thereby ensuring further rental increase in the medium term

A total of some 762,000 square metres of office space were taken up in the Top 5 office locations of Berlin, Düsseldorf (incl. Hilden, Erkrath, Ratingen and Neuss), Frankfurt am Main, Hamburg and Munich (incl. environs) in the first quarter of 2016, marking an increase of almost 19% compared with the prior-year period. This is a result of the most recent analysis prepared by commercial real estate services company CBRE.

Letting dynamic remains high
Following a strong year-earlier result, vigorous letting momentum persisted at the start of 2016 as well. The Berlin market in particular registered a sharp increase in take-up of more than 61% in a year-on-year comparison. Significant growth was also reported in Frankfurt (up 36%) and Düsseldorf (up 23%). Take-up in Munich remained virtually unchanged from the year-earlier level, while Hamburg reported a letting decline of one fifth due to the lack of large-scale transactions.

Berlin remains the market with the strongest take-up
Similar to year-end 2015, the largest take-up of 226,000 square metres in rented and owner-occupied office space was reported in Berlin.

Munich followed in second place with an office take-up of just under 183,000 square metres, which is marginally higher than the previous year’s figure, with the proportion of owner occupation almost doubling in absolute as well as relative terms. Frankfurt (134,000 square metres) and Düsseldorf (120,000 square metres) came next, ahead of Hamburg where the take-up volume declined. In the first three months, the result in Hamburg settled just under the 100,000 square metre mark, which is around one fifth less than in the first quarter of 2015.

TMT sector still strong
In the first three months of the current year, seven major lettings and owner-occupations, each of 10,000 square metres and more, were registered compared with five transactions in the prior-year period. Approximately 15% of take-up was accounted for by the TMT sector (telecommunications, media, technology). Companies in this sector were particularly keen to rent in Munich (19%) and Hamburg (16%). In the other three top locations the TNT sector also generated a double-digit percentage share in take-up. In addition, advisors (11%) and the public sector (10%) were strong in terms of take-up in the top locations, the latter in particular in Berlin through the owner-occupancy of the German Federal Ministry for Health and Social Security which took up 29,000 square metres, which was also the largest transaction in the Top 5 markets in the first quarter – and Munich, where, among others, the City of Munich rented a large unit in the East Side Campus, as well as in Düsseldorf.

Vacancy volume declines by almost one million square metres
Vacancies continue to decline in all top locations. Above all older, outdated properties in the rather more peripheral sub-markets of Frankfurt are being vacated and put to other uses, mainly residential. This development highlights the general trend of user preference for cutting-edge, efficient and flexible office space in central locations. The reduction in vacancies was particularly marked in Munich and Berlin, where vacancy fell by 28% and 21% respectively in absolute terms., The volume of unoccupied office space also contracted by double-digit percentages in Hamburg– despite a very high volume of completions – and Düsseldorf. In Frankfurt, the decline was more moderate at just under 4%. At the end of the first quarter, overall vacancies in the Top 5 markets had decreased by 16.3%, or almost one million square meters, to around 5.1 million square metres. Net absorption came in at just under 163,000 square metres, which is significantly higher than the prior-year figure.

The reduction in vacancy volumes is reflected in the vacancy rate. The average vacancy rate in the Top 5 dropped again in the wake of extremely dynamic letting activity, the increasing conversion of space which is no longer marketable to accommodate alternative usage, the low level of new construction activity, and a moderate construction pipeline with a high pre-letting rate. By the end of the first quarter, the vacancy rate posted 7.0%, down 1.3%-points against the year-earlier figure.

Of the completions anticipated until year-end 2018, some 60% of the available office space averaged across the Top 5 locations have already been assigned to users. The highest speculative proportion was reported in Munich (49%). It is, however, also the market with the lowest vacancy rate of 4.7% – in central locations even partly below 2% – so that demand for new office space remains strong and there should be a high absorption of space until the respective projects have reached completion.

According to the most recent information, new or completely refurbished officespace totalling almost 2.6 million square metres is anticipated in the Top 5 locations until the end of 2018. “In view of the positive fundamental trends in the German economy, we anticipate that users will quickly be found for the space currently in the pipeline and that, in line with our forecasts, the vacancies and vacancy rates in the Top 5 markets will continue to decline in the medium term”, states Linsin.

Prime rent continues its uptrend
Sustainably achievable prime rent continued to rise in almost all office centres in comparison with the previous year. Only in Düsseldorf where high-quality space in top locations remains scarce, did figures remain at the previous year’s level of € 26.00 per square metre and month. The increase in Berlin was particularly pronounced. Here, prime rent climbed by 11% to € 25.00 per square metre and month, driven by the trend in the Potsdamer Platz/Leipziger Platz AAA sub-market. “This development is likely to hold steady for some time due to users’ strong demand for high quality office space, which will allow Berlin to advance to the third most expensive office market measured by prime rent after Frankfurt and Munich in the next five years”, adds Linsin.

Prime rent also increased significantly in Munich, climbing by 1.5% to € 34.00 compared with the year-earlier figure. Hamburg saw the prime rent rise by 2.0% to now € 25.00. Frankfurt reported a 1.3% increase in monthly prime rent to € 39.50 per square metre and month, which makes the Main metropolis the most expensive of the Top 5 locations.

Average rent also on the rise
In a year-on-year comparison, the weighted average rent also rose, partly considerably, in almost all locations with the exception of Frankfurt. Of the top locations, Düsseldorf, where the weighted average rent increased by 13.5% to € 14.49 per square metre and month, reported the strongest growth, followed by Berlin with an increase of 7.8% to € 15.14 and Munich (up 7.2% to € 16.65). In Hamburg, the weighted average rent stood at € 14.75 per square metre and month, which is marginally higher than the previous year’s level. In Frankfurt, by contrast, the weighted average rent declined slightly and, by the end of the quarter, stood at € 18.33 per square metre per month, down 5.7% in comparison with the prior-year figure.

2016 letting year could exceed the three million square metre mark
“The letting year in the five largest office markets got off to a good start. The German economy’s underlying trend remains upbeat and is having a positive effect on the letting markets, which is why we anticipate take-up of more than three million square metres for the full year. As the completion pipeline is still only moderately filled, accompanied by a high pre-letting level, we expect rents for cutting-edge office space in inner-city locations to continue to rise”, commented Ape.

Top 5 office letting markets

Source: CBRE Research, Q1 2016

Source: CBRE Research, Q1 2016

Contact:
Carsten Ape
CBRE GmbH
Head of Agency Germany
49 69 17 00 77 0
carsten.ape@cbre.com

Dr. Jan Linsin
CBRE GmbH
Head of Research Germany
+49 69 17 00 77 663
jan.linsin@cbre.com