Letting take-up on Germany´s five major office markets increases by five percent year on year
Office take-up on the Top 5 markets slightly exceeds the ten-year average at 2.45 million square metres
Divergent market dynamics: Bumper year in Berlin, massive increases in Hamburg and Munich, reverse trend in Düsseldorf and Frankfurt
Average vacancy rate drops below the mark of nine percent
Achievable prime rent in Frankfurt climbs to 39.00 euros per square metre
In the course of 2014, lettings on Germany's five biggest office markets – Berlin, Düsseldorf, Frankfurt am Main, Hamburg and Munich – added up to 2.45 million square metres. The figure narrowly exceeds the long-term mean by around one percent. Year on year, however, the take-up of the calendar year just concluded grew at a rate of five percent. This is the gist of the Office Market Report compiled by the real estate consultancy firm CBRE. “Considering that the take-up of the two previous years declined by roughly eight percent each, we are now looking at a trend reversal,” said Carsten Ape, Head of Agency at CBRE Germany. “Sentiment on the market is predominantly upbeat, because the fundamentals remain robust and encourage the creation of jobs. The increase in white-collar job is most keenly felt in the country's leading office markets. That being said, each occupier market presents a different picture that contains shadows along with all the brightness.”
“In some cases, the currently prevailing geopolitical uncertainties put the damper on companies' plans to rent extra space or to relocate,” added Jan Linsin, Head of Research at CBRE Germany. “Accordingly, we are registering quite a number of renewals of unexpired leases, which added up to nearly 460,000 square metres over the past months.” These, as Linsin went on to explain, are not included in the standard office letting statistics. Signings of this type include well over a dozen lease renewals in the size category of 10,000 square metres or more, and another 15 lease renewals in the category of 5,000 square metres or more. The number of lease term renewals was particularly high in Frankfurt (more than 220,000 square metres) and Düsseldorf (more than 110,000 square metres).
Berlin, Hamburg and Munich Return Positive Results
Berlin's office rental market concluded 2014 with its highest quarter-end and year-end result on record ever since market data began to be kept. The accumulated annual take-up of 608,800 square metres tops the previous year-end result by almost 30 percent. Among the five office market hubs, Berlin registered the biggest increase in take-up due to various large letting deals and owner occupations in the sectors of financial services, industrial / construction, R&D / biotechnology. But even more so, the surge is attributable to the steadily growing creative cluster of the TMT sector in Berlin as Germany's leading start-up metropolis, as it accounted for nearly 30 percent of the accumulated take-up volume of the letting year just concluded. The owner-occupier rate came to a total of ten percent.
Hamburg reported a substantial increase by 19 percent with a take-up of 525,000 square metres. It made 2014 one of best letting years in the city since the boom year of 2007. The total exceeds the long-term average of the past ten years by ten percent. The robust result was driven by the large-scale rental deal signed by Deutsche Telekom for more than 32,000 square metres on Überseering in the sub-market City-Nord, and by the 16,000 square metres let to Marquard & Bahls AG in the HafenCity submarket. The owner occupation of 22,000 square metres in Winterhude/Barmbek by VBG Verwaltungs-Berufsgenossenschaft Bezirksverwaltung Hamburg was also registered in 2014. It brought the owner-occupier share of the market in Hamburg up to 19 percent.
Munich remained the office market with the highest take-up in Germany, reporting a total of 634,200 square metres. The result for 2014 increased by almost eight percent year-on-year due to the robust concluding quarter, which accounted for 214,800 square metres in lettings and thus for almost one third of the entire annual take-up. The owner-occupier rate equalled merely two percent. Unlike the previous two quarters in Munich, which failed to see a single major signing for floor plate larger than 5,000 square metres, there were no less than six such deals during the year's concluding quarter. All things considered, large-scale transactions contributed roughly one fifth to the total annual turnover. The share of small-scale signings for premises of less than 500 square metres was almost identical.
Declining Take-Up in Frankfurt and Düsseldorf
The take-up in Frankfurt, subject to an owner-occupier rate of two percent, added up to a total of 372,000 square metres, and undercut the long-term mean by around 20 percent. The downtrend in Germany's leading place of finance is explained, among other factors, by the high proportion of leases renewed, as opposed to new leases signed, with lease term renewals adding up to 220,000 square metres by the end of 2014, half of them representing major leases. Letting activities were essentially defined by rentals to banks and financial services providers whose large-scale signings accounted for more than 35 percent of the entire take-up and represented primarily new floor plate in Frankfurt’s CBD. Accordingly, more than half of the entire office take-up in Frankfurt was limited to the city's three central sub-markets of Banking District, Westend and City.
Düsseldorf experienced a decline in take-up mainly explained by the fact that several major letting contracts expected to be signed in 2014 were shelved, causing the market dynamics within the city limits to drop back to 236,500 square metres let. The letting market in Düsseldorf's subburbs did far better. The floor area taken off the market by owner occupiers or tenants in four of the city's suburban communities exceeded the 2013 total by 88 percent. Especially the sub-market Ratingen registered a substantially increased take-up after Mitsubishi Electric BV moved into owner-occupied premises, among other deals, so that this sub-market contributed nearly 15 percent to the year-end total. The owner-occupier rate for Düsseldorf's market as a whole showed a steep one-year increase by almost 17 percent. The resulting total was a year-end take-up of 314,800 square metres.
Strong Demand from TMT Sector Companies
The main contributors to the letting take-up in the prime locations included banks and financial services providers, the consulting sector and the TMT sector. The latter accounted for roughly one fifth of the total take-up, the hot spots being Berlin, Munich and Hamburg. In addition, the manufacturing industry is on record with several large-scale rentals, suggesting buoyant sentiment.
Vacancy Rate Declining Nationwide
Vacancy rates in Germany's Top 5 markets continued their down-trend. Slight dips were registered in Düsseldorf (-0.1 percentage points to 10.5 percent), Hamburg (-0.3 percentage points to 7.5 percent) and Munich (-0.5 percentage points to 6.8 percent), whereas vacancy rates in Berlin and most notably in Frankfurt plunged (-0.8 percentage points to 8.0 percent, and -3.3 percentage points to 11.4 percent). The mean vacancy rate among Germany's five leading office hubs is 8.8 percent of the office space. In absolute terms, the vacancy total decreased by almost 640,000 square metres or by 9.3 percent.
Prime Rents and Average Rents Growing at Different Speeds
Prime rents continued to perk up in Hamburg (+2.1 percent to 24.50 euros per square metre and month) and Munich (+1.5 to 33.00 euros per square metre and month). Ending a very long period of stability, the achievable prime rent in Frankfurt also pushed up by 2.6 percent to now 39.00 euros per square metre and month toward the end of 2014. In the German capital Berlin, the prime rent remained at 22.50 euros per square metre and month, matching the previous year's level, whereas the prime rent in Düsseldorf declined by 5.5 percent to 26.00 euros per square metre and months.
The weighted average rent softened in the cities of Düsseldorf (-9.5 percent) and Munich (-1.6 percent), whereas it hardened slightly in Berlin (+6.4 percent) and Hamburg (+1.6 percent). The weighted average rent in Frankfurt surged by a notable 17 percent year-on-year, driven by several large-volume rentals in new completions in the banking district.
Construction Activity up 20 Percent
In the course of 2014, the volume of new or redeveloped office accommodation entering the market in Germany's top locations increased by nearly 20 percent year-on-year. On the whole, around 886,000 square metres of office space were completed, with Frankfurt and Munich alone accounting for 40 percent thereof. “The year just started will see more than one million square metres in new or revitalised office accommodation come on-stream in Germany's top locations, though a large share of it represents prelet office space in Berlin,” as Ape explained. Recent market intelligence suggests that the years ahead are likely to deliver much lower completions volumes, with barely 670,000 square metres being forecast for 2016, and less than 350,000 square metres for 2017. Given the fact that altogether over 60 percent of the planned accommodation that will hit the market between now and 2017 is prelet, the vacancy reduction is likely to continue and to encourage a proportionate rental growth, assuming letting markets will be stimulated by the economic recovery.
Outlook: Lettings to Gather Momentum in 2015
“In the letting year 2015, we expect the office take-up to remain above the long-term average of the past ten years, not least because quite a number of major leases are about to expire. By the looks of it, the German economy remains rather robust, and even the creation of jobs continues apace with the brightening sentiment on the market, making it reasonable to anticipate the demand for floor space among office occupiers to increase,” said Linsin.
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