Top 5 office letting markets report strong growth
Take-up of 2.3 million square metres in the first nine months
Vacancy drops by 15% year-on-year
Rents continue to rise – except in Frankfurt
A good 2.3 million sq m were taken up in total in the first nine months, which is around 11% more compared with the prior year period. Particularly strong growth in Berlin and Frankfurt (up 20% respectively) contributed to the solid result. The capital city of Berlin, where take-up amounted to almost 671,000 sq m, remains in undisputed first place. In the third quarter alone, take-up in the Top 5 markets came in at just under 809,000 sq m. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE.
Demand for office space is unlikely to slow for the time being, particularly in the major real estate strongholds. This is attributable to sound macroeconomic development, rising employment figures, as well as to the recent return to positive expectations of business development, which is also boosting the number of office employees.
TMT sector dominates demand
The TMT sector (telecommunications, media and technology) remains a very strong driver of take-up, particularly in the large office centres. In Berlin, as much as 42% of take-up was attributable to lettings in this segment in the third quarter alone. Over the course of the year to date, 32% was accounted for by the TMT sector, representing the highest figure among the Top 5 locations. In other cities as well, new leases by the respective companies reached double-digit percentage shares, with the result that almost 483,000 sq m were attributable to lettings in this sector.
Vacancy rate continues to fall
Compared with the prior-year period, vacancy rates continued to decline across almost all locations. Figures only remained unchanged in Frankfurt. The low level of speculative completions, coupled with an ongoing strong tendency to convert older building stock, contributed to this reduction. In absolute terms, vacancy in the top locations declined by 15% in a year-on-year comparison, leaving only 4.8 million sq m of office space vacant.
Office space in Munich, Hamburg and Berlin is becoming scarce – the vacancy rates in these cities have already fallen below the 6% mark. Office space planned through to 2018 eases the situation slightly as quite a large proportion has not yet been let. By the time these offices have been completed, however, this will have most certainly changed, particularly as we are seeing a trend in leasing and the search for office space by users towards modern, flexible office space in the central locations of the major office centres.
Around 673,000 sq m in total of new or refurbished office space in the Top 5 locations were put on the market in the first three quarters of this year, which represents a significant increase compared with the prior year period (up 24%). “As the demand for state-of-art and technologically up-to-date office space continues to run at high level, the space still available is quickly absorbed in the market,” Ape says. “Given the sound growth predicted for Germany’s economy in the coming year as well, we anticipate a further reduction in vacancy,” Ape adds.
Rents in core locations on the rise
The rent level in office centre top locations continues to rise, driven by unabatedly high demand and increasingly scarce supply due to falling vacancy rates, in particular in the prime segment. As in the previous year, sustainably achievable prime rent in Frankfurt remained at €39.50 /sq m/month – as before, this is the highest figure of the Top 5 locations. A significant year-on-year increase of 17% was reported in Berlin where €27.00 /sq m/month meanwhile are achievable, driven by the respective office space at Potsdamer Platz.
The weighted average rent also climbed across almost all locations, albeit more moderately. The most significant rise, with an increase of 4.5%, was registered in Düsseldorf, followed by Munich with 4%.
Forecast: office space take-up of three million sq m in the full year
“The outlook for the rest of the year is quite positive, with a letting performance of three million sq m and more quite possible in the Top 5 markets. Developments in the financial sector and the associated impact on the real estate market, above all on the financial centre of Frankfurt, remain to be seen,” Ape says.
“The broadly diversified economic structure in Germany’s office centres is, however, an advantage. Along with innovative segments from the TMT sector, these centres also benefit from a broad spectrum of other user groups looking for new, more flexible space for their employees,” Linsin comments.
Top 5 office letting markets
Source: CBRE Research, Q3 2016
Source: CBRE Research, Q3 2016
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.de.