-       Office take-up at 525,800 sq m in the first quarter of 2024, marginally below the year-earlier level

-       Vacancy rate up by 1.6 percentage points over the last 12 months to 6.5 percent – polarization accelerating with regard to location and fit-out quality

-       Achievable prime rents rise across all locations – Munich commanding the highest rents at currently €52.00 per sq m

-       Completion pipeline for the next two years contracts by 1.4 million sq m to 4.1 million sq 

Germany’s Top 5 office leasing markets recorded take-up of 525,800 sq m in the first quarter of 2024. Compared with the first quarter of 2023, this marks a decline of 0.6 percent. In addition to direct take-up, contract renewals covered 134,500 sq m, which is 37 percent above the five-year average since 2019. Demand continues to focus on the central locations. The Top 5 CBDs accounted for around 220,000 sq m in the first quarter, therefore capturing a share of 42 percent in the overall take-up volume despite short supply. Expressed as an average of the last five years, this share came in at 27 percent. Berlin reported the highest take-up volume at 153,300 sq m (down six percent year on year), followed by Munich (144,700 sq m, up 28 percent), Frankfurt (80,900 sq m, up four percent), Hamburg (86,300 sq m, down 26 percent), and Düsseldorf (60,600 sq m, no change). These are the results of a current analysis prepared by the global commercial real estate services company CBRE.

Measured by individual industry sectors, the public sector predominated, boosted in particular by the federal government’s two major owner-occupier deals in Berlin with a relative share of 15 percent, followed by industry, construction (14 percent of overall take-up) and consultants (11 percent). Still under the influence of the challenging financing environment and ongoing consolidation, the tech sector captured a relatively high proportion of 14 percent but, with a volume of just under 70,000 sq m, nevertheless fell 44 percent short of the level of the past five years.

Vacancies on the rise

In comparison with the previous year, vacancy volumes increased significantly by 33 percent to 5.2 million sq m, posting the highest figure since Q4 2015 (5.3 million sq m). In a quarter-on-quarter comparison, however, the increase came in at only three percent, which indicates that the rate at which vacancies are rising is slowing somewhat. The Top 5 vacancy rate therefore stood at 6.5 percent at year-end, at 1.6 percentage points above the year-earlier quarter and at 0.9 percentage points quarter on quarter. At the same time, this is the highest figure seen since the second quarter of 2016 (6.6 percent), signifying a return to normal levels compared with the long-term average. Under the current forecast, double-digit figures similar to the start of the last cycle (third quarter of 2011: 10.1 percent) are not anticipated. Sharp growth was once again registered in Munich (up 2.6 percentage points to 6.3 percent) and Berlin (up 1.4 percentage points to 5.6 percent), followed by Frankfurt (up 1.3 percentage points to 9.2 percent), Hamburg (up 0.9 percentage points to 3.6 percent), and Düsseldorf (up 0.8 percentage points to 9.9 percent). The vacancy rate of 5.0 percent in the Top 5 CBD locations has fallen below the average of the overall market. By contrast, the vacancy rate in Top 5 peripheral locations is significantly higher at 8.4 percent, which points to clear, demand-driven and location-specific polarization. Office space available for subletting also rose again and, at 687,000 sq m, is more than 31 percent above the year-earlier level.

Rents in an uptrend

Sustainably achievable prime rents increased in all locations in a year-on-year comparison. Top of the league table came Munich (up 14 percent to €52.00 per sq m and month), Düsseldorf (up 11 percent to €42.00), Frankfurt (up 4 percent to €48.00), Hamburg (up one percent to €35.00), and Berlin (up one percent to €44.00). By the end of the first quarter, the weighted average rent in the Top 5 CBD locations had settled at around €33.00, marking a slight year-on-year increase of four percent. Against the average of the peripheral sub-markets (around €16), the inherent location-specific premium therefore exceeds 100 percent.

“Demand-side polarization and the structural supply shortage of premium office space in central locations is leading to a divergence in the development of asking rents and rents agreed. In top CBD properties partly considerable rental growth is being achieved, latterly in Munich and Düsseldorf, for instance. In the peripheral locations by contrast, and in increasingly dysfunctional, non-ESG-compliant old stock, we are more frequently seeing the trend stagnating and even in decline due to fiercer competition,” Ape explains.

Construction in a downturn

Completions of new office space came in at 270,000 sq m in the first quarter of 2024, marking a decline of 11 percent compared with the year-earlier period. “Given still high building and development costs and an only gradual correction of land prices in central inner-city locations, paired with reticence on the part of the banks, construction activity can be expected to slow further,” Linsin states. This is also clearly evidenced by the contraction in the project pipeline. At the present point in time, 4.1 million sq m of office space in total is under construction or at the planning stage through to 2026, 2.5 million sq m of which (i.e. 60 percent) has not yet been leased. The year before, the overall volume for the next three years still stood at 5.5 million sq m (3.2 million sq m of which had not been leased). The pre-letting rate of the current pipeline through to 2026 is proving to be relatively healthy: 59 percent for 2024, 44 percent for 2025, and 23 percent through to 2026.

Outlook for the full-year 2024

“The office leasing markets are mainly determined by the general macroeconomic development. For the year as a whole, we do not therefore expect any leaps and bounds in demand momentum but rather a further, gradual improvement. We anticipate a slight upswing in 2024, with take-up of 2.2 to 2.3 million sq m,” Ape says.

“The occupier-driven trend in the direction of the optimization and rationalization of office portfolios is set to continue over the remainder of the year. The aim of many companies is to have less but much more productive and higher quality office space overall. Thanks to sound demand activity in the smaller and mid-sized segment, a growing number of more major deals again, and the rising volume of inquiries in some markets, we believe we have grounds for being cautiously optimistic for the rest of the year,” Linsin explains.