Top 5 office letting markets deliver record take-up
Take-up up 5.6% to around 3.2 million sq m
Large-scale letting and owner occupancies, above all with new building projects
Ongoing decline in vacancy rates
Offer of high-quality office space in central sub-markets progressively dwindling
A total of 3.19 million sq m were traded in the top locations over the past year, up 5.6% in a year-on-year comparison. At the same time, this is also the highest take-up since records began in 2003 and another 5% above the result posted in 2007, the last boom year. All in all, 25 large-scale lettings and owner occupations of 10,000 sq m and more were reported in the five large letting centres. Along with the wholly positive take-up results, take-up in Frankfurt in particular (up 36% to over 546,000 sq m) contributed to the sound performance. Berlin with a good 888,000 sq m delivered the highest take-up, followed by Munich with 789,000 sq m. In the final quarter alone, take-up in the Top 5 markets came in at just under 857,000 sq m. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE.
Demand for office space continues to run at an uninterruptedly high level in the top centres, supported by Germany’s very robust economy, very good labour market data and strong growth in employment in the companies, above all in the services industry and the public sector. The demand for high quality and efficient office space mainly in sub-markets around city centres is ongoing.
TMT continues to be a strong driver of take-up
At year-end, the TMT (telecommunications, media and technology) sector topped the league of the strongest drivers of take-up. This industry accounted for almost 700,000 sq m, equivalent to 22% of total take-up in the Top 5 locations. In Berlin, this segment with 306,000 sq m, equivalent to a good 34% of take-up, is close to traditionally being the highest performing sector. However, the comparatively young TMT sector, with a share of almost 22% measured by annual take-up, is an important component for Munich as well. Other important drivers in the top locations included industrial enterprises and the financial services sector, with 9.1% and 8.8% respectively, as well as the public sector with a good 8%.
Vacancy rates still on the decline – Munich and Berlin already below the 5% mark
The proportion of vacant office space in the overall stock declined in all locations owing to the conversion of obsolete space to accommodate other types of use, mainly residential. In absolute terms, the vacancy rate in the top centres declined by 13.5% in a year-on-year comparison, leaving only 4.6 million sq m of office space vacant.
There is very little space available, particularly in Munich and Berlin. Vacancy rates across these market areas post 4.4% and 4.9% respectively and are already below the 5% mark generally deemed necessary as a liquidity reserve. In the very popular central sub-markets, the vacancy rate is less than 2%. In Hamburg as well, the proportion of vacant space posts a mere 5.4% – office space is becoming scarce. This is making relocations and expansions increasingly difficult for potential tenants.
Of the new or completely refurbished office space to be placed in the market again through to the end of 2019, a good 50% is currently still available. This volume will, however, decline considerably through to the end of the respective completion period as demand, in particular for new office space, continues to run at an uninterruptedly high level, and is set to intensify in response to the sound development on the labour market and the predicted increase in white-collar workers.
All in all, around 1.1 million sq m of new or completely refurbished office space in the Top 5 locations came on the market, which is a good 38% more than in the previous year. The completion volume in Hamburg, Frankfurt and Berlin was disproportionately high, compared with Düsseldorf and Munich where around 37% and 30% respectively less was completed than in 2015.
Prime yields in Berlin increase at double-digit rate
The rent level in office centre top locations continues to rise on the back of unbroken and strong demand for high-quality, inner-city office space, all the more so as the ongoing reduction in vacancy rates is causing an increasingly significant shortfall. Similar to the previous year, prime rent sustainably achievable in Frankfurt remained at €39.50 per sq m and month – as before, this is the highest figure of the Top 5 locations. The steepest year-on-year increase of 17% was reported in Berlin where up to €27.50 per sq m and month can meanwhile be commanded in prime locations.
The weighted average rent also climbed across almost all centres, albeit more moderately. The most significant rise, with an increase of 5.2%, was registered in Berlin, followed by Düsseldorf with 4.5% and Hamburg with 4.4%. Only in Munich did the weighted average rent decline by 2.8% in a year-on-year comparison. This was due to several deals involving large surface areas in comparatively inexpensive properties on the fringe of the city and suburban locations, as well as the leasing of properties with fewer amenities by price-sensitive companies.
Outlook: take-up in 2017 at a long-term level – workplace strategies increasingly important
“In 2017, the German economy will continue to chart its growth course, albeit at a somewhat more moderate pace. The sharp increase in the number of jobs, above all in the services sector, is likely to maintain its momentum, as indicated by the number of open positions, the IAB Labour Market Barometer, as well as the Ifo Employment Barometer which have reached a very high level or even gone up,” Linsin states. As a result, office take-up in the Top 5 locations can be expected to remain around the level of the long-term average. Topics such as optimising space and making it more efficient in the context of a workplace strategy to reduce the average office space per person, with the corresponding impact on take-up in the respective markets, will become increasingly important. “The extent to which relocations by companies from the financial sector and the TMT industry due to Brexit which is imminent 2017 will play a decisive role – as things stand today – remains to be seen,” Ape comments. “Irrespective of this, we anticipate robust demand, above all for cutting-edge office space, which could ensure that prime rents continue to rise given the fairly moderate completion figures in recent years and the limited pipeline,” Ape says.
Top 5 office letting markets
Source: CBRE Research, Q4 2016
Source: CBRE Research, Q4 2016
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