• Office space take-up in the Top 5 markets up 14 percent in the first quarter of 2016 year-on-year

• Munich and Frankfurt report significant growth compared with the prior-year period

• Berlin with more than 407,000 sq m as the hot spot, also for office rentals

• Vacancy rate in the Top 5 below seven percent – under 4.5 percent in Munich

• Prime rent in Berlin climbs by 13 percent over the course of the year – average rents rise significantly, above all in Düsseldorf, Munich and Berlin

• Office space pipeline well-filled with more than 2.6 million sq m through to the end of 2018 – high pre-letting rate ensures rent increase in the medium term

Germany’s five largest office letting markets continue to enjoy a strong uptrend. A total of some 1.5 sq m of office space were taken up in the Top 5 office centres of Berlin, Düsseldorf (incl. Hilden, Erkrath, Ratingen and Neuss), Frankfurt am Main, Hamburg and Munich (incl. environs) in the first half of 2016, marking an increase of almost 14 percent compared with the prior-year period. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE.

Compared with the year-earlier period, letting momentum was stronger in Munich (up 25 percent), Frankfurt (up 24 percent) and Berlin (up 17 percent) in particular. Slight growth was also registered in Düsseldorf (up six percent). In Hamburg, current take-up did not quite match the year-earlier level due to the lack of major transactions, an exception being the extension by Nordex for its own use. Overall, twelve transactions, each of more than 10,000 sq m, including four owner occupations, were registered in the first half of 2016. Only one transaction was attributable to Hamburg and Düsseldorf respectively (leasing by Uniper in the port). With 407,500 sq m of space let or owner-occupied, Berlin remains the market with the highest take-up. A new record result was also reported here at mid-2016. With the German Federal Ministry for Health and Social Security in Berlin, the Federal Authority for Real Property Administration in Munich, and the Municipality of the City of Munich, the public sector accounted for three of the twelve major transactions that together amount to just under 60,000 sq m.

TMT sector still seeing high take-up
Approximately 18 percent of take-up in the Top 5 locations was accounted for by the TMT sector (telecommunications, media, technology). Companies in this sector were very active in Berlin (23 percent) and Munich (18 percent). Through strong take-up, especially in Berlin, where the owner occupation of the German Federal Ministry for Health and Social Security with some 29,000 sq m also constituted the largest deal in the first six months in the Top 5 locations, and in Munich, the public sector achieved the second highest share in the take-up volume with just under 11 percent, almost on a par with the consultancy sector (10.5 percent).

Vacancy rate reduction ongoing
Vacancies continue to decline across all locations. While the volume of vacant office space in Frankfurt remained virtually unchanged from the prior-year level, vacancies were drastically reduced in Munich (down 28 percent) and Berlin (down 21 percent) in particular. In Düsseldorf and Hamburg as well, the vacancy rate fell in the double-digit percentage range. Along with strong demand for office space, there is clear evidence here of a growing tendency toward conversions, particularly for residential usage and for housing refugees, as well as demolitions or the redevelopment of office properties that are no longer attractive to the market and have stood empty for a long time. As a result, the vacancy rate declined significantly across all top locations, by 1.2 percentage points to currently 6.8 percent measured against the first six months of 2015. With 4.5 percent, Munich reported the lowest figure of the five main office locations, followed by Hamburg with 5.8 percent. The positive vacancy trend was also supported by the fact that, despite the very high volume of completions, above all in Munich, Berlin and Frankfurt, little space of a speculative nature reaches the market. The majority of new builds and redevelopments completed is already let to a great extent or taken for owner occupation. The generally high demand and user requirements for state-of-the-art, high-quality office space suggest that property that is still available and put on the market will quickly be absorbed as the year progresses. Across the Top 5, this is only one fifth or a good 200,000 sq m. All in all, around 1.2 million sq m of office space is anticipated in the five locations by the end of 2018, with the majority accounted for by Berlin (almost 850,000 sq m) and Munich (almost 660,000 sq m). The need for new and additional space is, however, particularly high in these two locations.
“Although the pipeline is well-filled with new or redeveloped office space in the Top 5, the high proportion of owner occupation and high pre-letting rates ensure that the space currently available on the market will quickly find users given that demand for new and efficient space is running high, and that vacancies will continue to decline in line with our forecasts. Munich in particular is approaching the critical value of the natural vacancy rate that should be on the market as a fluctuation reserve. We therefore assume that the prime rents will continue to rise moderately in the coming years, with Berlin and Munich reporting the highest dynamics,” Linsin says.

Prime rate on the increase in all five top locations
The sustainably achievable prime rent for first-rate office property continued to rise in all top locations compared with the first six months of 2015, as impressively demonstrated by the persistently strong demand for high-quality office space in central locations. The 13 percent increase in Berlin to €26.00 per sq m in Berlin was particularly substantial. The prime rent in Germany’s capital is therefore now higher than in Hamburg where the second largest increase of four percent to €25.50 per sq m was reported. In Munich (up three percent to €34.50 per sq m), Düsseldorf (up two percent to €26.50 per sq m) and Frankfurt (up 1.3 percent to €39.50 per sq m), growth was more moderate, with Frankfurt posting the highest figure overall.

Average rent rising almost everywhere
The weighted average rent also rose across the board with the exception of Frankfurt. In Düsseldorf (up 11 percent to €14.60 per sq m) and Munich (up eight percent to €16.46 per sq m), the increase was especially high. Growth was reported in Berlin (up five percent to €15.34 per sq m) and Hamburg (up three percent to €14.98 per sq m), compared with Frankfurt where the weighted average rent declined by almost 10 percent to €18.12 per sq m. Of the top locations, Frankfurt nevertheless registered the highest figures, both in terms of the weighted average rent and prime rent. “The decline in Frankfurt’s average rent is attributable to the high number of larger lettings in the medium price segment. This reflects a clear trend of companies, above all in the financial sector, to gravitate towards city centres – take for instance the leasing of the European Central Bank in the Japan Center, the Union Investment in the Neue Mainzer Strasse close to the MainTor Porta or the DZ-Bank in Kastor, as well as the newly founded fintech center in Pollux in the direct vicinity of Messe Frankfurt,” Ape explains.

Outlook for the letting year 2016: letting take-up may exceed the three million square metre mark by year-end
“We anticipate that excellent letting momentum in the Top 5 office markets will hold steady in the second half of the year as well. Consequently, letting take-up may well exceed the three million square metre mark by year-end, and not even a temporary lull in Germany’s economic performance will change this. The extent to which Brexit will impact the market here currently remains to be seen given the huge uncertainties in the market, particularly as the German cities that come into question such as Berlin, Frankfurt and Munich must then compete with other EU member state cities, first and foremost Amsterdam, Dublin, Luxembourg and Paris”, Ape comments. “In the case of Berlin, locational advantages include, for instance, the city’s emerging start-up scene and creative sector that principally serve to make it one of the global fintech hubs. Geographical proximity to the European Central Bank is an argument in for companies from the financial sector to favor Frankfurt as a financial center, while in the already strongest and most dynamic region in and around Munich there is a wide diversification of hightech businesses,” Ape added.

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

Dr. Jan Linsin
CBRE GmbH
Head of Research Germany
+49 (0)69 17 00 77 663
jan.linsin@cbre.com