Third best result for take-up in the five large office markets since the boom years 2000 and 2007
Rental markets track the strong investment market trend
Office space take-up in the Top 5 markets in 2015 posts a good three million square metres, up 23% year-on-year
Record result in Berlin and extremely high letting rate in Munich and Düsseldorf; significant upturn in Frankfurt as well; Hamburg reports slight increase at a high level
Vacancies on the decline almost everywhere
Generally significant rental growth
A total of more than three million square metres of office space was 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 2015, equivalent to an increase of almost 23% compared with the previous year. The letting performance in 2015 represents the third best result since the two boom years 2000 and 2007, with aggregate take-up in 2015 only 30,000 square metres lower than the level reported for the last cyclical peak. This is the conclusion drawn in an updated analysis prepared by commercial real estate services company CBRE.
Strong letting trend persists
Following signs of a trend reversal in the rental markets back in the third quarter, the strong letting trend held steady in the final quarter. With around 926,000 square metres, over 20% more was let than in the year-earlier quarter, due in particular to record take-up in Berlin where 321,000 square metres were rented in the fourth quarter alone. Significantly higher take-up was also reported in Düsseldorf, Hamburg in Munich where quarterly take-up increased between 13% and 15% in comparison with the previous year.
Berlin breaks all records
Berlin came top of the office space take-up league in 2015. The city's letting market broke all records in 2015, closing the year with a result of 881,800 square metres, which is almost 45% higher than the record posted a year earlier. It represents the highest aggregated take-up since records begun, outstripping the 10-year average by 71%. Munich took second place with a total of 758,700 square meters due to the strongest take-up in four years in the final quarter of the year, ahead of Hamburg (535,000 square meters) and Düsseldorf (440,100 square meters) where take-up grew by almost 40% year-on-year. The Main metropolis of Frankfurt also reported an increase in lettings of just under 8% to 401,100 square metres despite fewer major transactions and numerous, partly large-scale contract renewals which are not relevant for take-up.
The healthy economic environment in this country, an extremely robust labour market, with a further increase in the number of people gainfully employed and office staff, combined with the underlying upbeat sentiment of Germany's economy, are reflected in the significant increase in take-up in the five most important office markets. The rental markets are well able to track the strong uptrend in the investment markets, allaying fears of a decoupling of user and capital market.
Almost a quarter of take-up attributable to the TMT sector
All in all, 29 large-scale lettings and owner occupancies of at least 10,000 square metres each were reported in 2015. In addition, another 42 contracts of at least 5,000 square meters each were signed. Almost a quarter of take-up was accounted for by the TMT (telecommunication, media, technology) sector, particularly in Germany's start-up city of Berlin (35%) where, alongside numerous small and mid-sized lettings in the growing start-up scene, large-scale lettings in property developments on the the fringe of the city were also transacted. In Düsseldorf this up-and-coming sector accounted for a share of around 31% in take-up, determined mainly through the large-scale rental arrangements of the hotel search portal Trivago and Deutsche Telekom. In Munich as a technology location as well, this sectoral cluster also weighs in very strongly with a share of more than 26%.
Moreover, the consulting industry (almost 10%), as well as banks and insurance companies (9.4%) and the public sector (9.3%) were also keen to rent in the top locations, the latter particularly in Munich and Hamburg where in each case the public sector has already freshly absorbed more than 90,000 square meters of office space from the market.
Vacancies decline with the exception of Frankfurt
Except for Frankfurt, vacancy rates in all the top locations have declined significantly in comparison with the previous year. A year-on-year comparison shows reductions of up to 28% in the vacancy volumes in Düsseldorf, Hamburg and Munich, whereas Frankfurt reported an increase of 3.7%. Older outdated properties in the more peripheral sub-markets of Frankfurt as an office location were vacated, which indicates the general trend of tenants towards modern, efficient and flexible office space in central locations. By the end of the year, the vacancy volume in the Top 5 markets stood at just under 5.3 million square metres, down 15.5% in comparison with 2014.
The reduction in vacancy volumes is reflected accordingly the in vacancy rates. The average vacancy rate in the Top 5 dropped in the wake of an extremely dynamic letting activity, the increasing conversion of space no longer marketable to accommodate alternative usage, the low level of new construction activity, and a moderate construction pipeline with a high occupancy rate. By the end of 2015, the vacancy rate posted 7.2%, down 1.2% against the year-earlier figure.
Of the completions anticipated by the end of 2018, some 60% of the available surface area averaged over the Top 5 locations have already been assigned to users. In Munich, a disproportionately high share (52%) is currently being built for speculative reasons. Steady, strong demand alongside scarce supply here do not, however, suggest any serious increase in vacancy volumes, especially as vacancy rates in the Munich market area dropped below the five-percent threshold to 4.9% in the fourth quarter of 2015 for the first time since 2002. Vacancy rate in central locations of the Isar metropolis were partly running below 2%.
Increase in prime rent in almost all office centres
The sustainably achievable prime rent rose in almost all office centres in comparison with the previous year. Düsseldorf was the only location where rents remained stable at €26.00 per square metre per month as there is a lack of premium space in top locations. The increase in Berlin where prime rent climbed by 4.4% to €23.50 was particularly pronounced. Similarly, prime rent in Munich could increase significantly. Compared with the year-earlier figure, prime rent rose by 3.0% to €34.00. Hamburg saw prime rent rise by 2% to €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 in a clear uptrend almost everywhere
The weighted average rent also rose, partly considerably, in almost all locations. In Berlin in particular, this figure rose significantly by 12% to €15.06 per square meter and month in a year-on-year comparison. Substantial price increases were also reported in Düsseldorf (+8.3% to €13.96), and in Munich (+8.2% to €16.42). The upturn in prices proved to be moderate in Hamburg. Compared with year-earlier levels, weighted average rent climbed by 2.7% to €14.70 per square metre and month. In Frankfurt, by contrast, weighted average rent declined. By year-end 2015, weighted average rent stood at €18.89 per square metre and month, which is 6.4% below the 2014 figure.
Optimistic outlook for the letting year 2016
The German economy is set to pick up momentum and grow in 2016, backed by a robust fundamental constitution. We are therefore confident in our outlook for the letting business in office real estate markets. The dynamic take-up trend could stabilize at a high level in view of the positive economic data even if user preference is largely concentrated on state-of-the-art space in city centre locations. Given the supply constraints in the coming years, we anticipate a moderate increase in rental prices.
Top 5 office letting markets
Source: CBRE Research 2016
Source: CBRE Research 2016
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