Düsseldorf/Munich, 5 April 2017 – The upward trend in Germany’s Big 7 of Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart again picked up speed in Q1 2017. According to Colliers International Germany, take-up totaled at around 960,000 million sqm in Q1, up roughly 20% from Q1 2016 and 40% above the ten-year average.
Susanne Kiese, Head of Research at Colliers International Germany, says, “German businesses see their current economic situation as altogether favorable and are optimistic about the future. The ifo business climate index, which is currently at an all-time high, is proof of the fact that even factors such as speculation on the impact of Brexit and the trade restriction measures announced repeatedly by the Trump administration have failed to bring about any significant uncertainty. The recent increase in the German purchasing managers index (EMI) is another indication of favorable economic conditions and a positive underlying sentiment among managers, making it likely that we will see investments in working capital and employment growth over the next few months.”
“All of the markets we survey are benefitting from these ongoing favorable conditions. The strong take-up results recorded in Q1 2016 were either matched – as was the case in Düsseldorf and Frankfurt – or even exceeded,” comments Peter Bigelmaier, Head of Office Letting at Colliers International.
Highest start to the year ever recorded in Munich
With around 260,000 sqm in take-up recorded in Q1, Munich came out on top among the Big 7. The high yoy increase in take-up of 43% can largely be attributed to nine leases signed in the segment of more than 5,000 sqm, including one owner-occupier deal. Deutsche Pfandbriefbank signed the largest lease for around 13,000 sqm at Business Campus Munich in Garching. The market was also characterized by take-up from the public sector.
Berlin achieved new record Q1 take-up results at around 190,000 sqm despite the fact that space in the city has become quite scarce. Berlin has become more popular than ever, with several large companies currently getting ready to move their business to the German capital. The city’s take-up results surpassed the previous all-time high from 2016 by another 7%. Market activity was characterized by one of the largest leases signed in Germany in Q1 involving a German federal authority (LKA/BKA) taking up almost 50,000 sqm and a lease signed by Zalando for roughly 35,000 sqm. Both leases reflect Berlin’s typical industry mix of public sector and fast-growing, creative start-ups and online businesses.
Hamburg registered the highest yoy growth in take-up at around 60%, coming in third among the Big 7 in Q1 2017 at 152,000 sqm. In addition to an interim lease signed for 20,000 sqm by the University of Hamburg, by far largest lease signed in Hamburg in Q1, these strong results can be attributed to lively leasing activity in the small space segment.
Frankfurt (123,000 sqm) and Düsseldorf (109,000 sqm) recorded results almost identical to Q1 2016. Two large-scale leases exceeding 10,000 sqm were signed for space in Düsseldorf project developments, accounting for one third of take-up, while not a single lease was recorded in this segment in Frankfurt. Instead, demand in Frankfurt revolved heavily around stock space of 2,000 sqm or less.
The year got off to a very diverse start in Stuttgart. Not only did the city post a large number of small leases signed in the segment of up to 2,000 sqm, it also saw a large owner-occupier deal signed for around 50,000 sqm in a project development in Leinfelden-Echterdingen. Total take-up came to 75,000 sqm, up 23% yoy.
Among the Big 7, take-up was lowest in Cologne at roughly 50,000 sqm. The city was, however, able to exceed its previous year results by 11% thanks to the German Aerospace Center’s decision to take up 13,500 sqm of new-build space under an owner-occupier deal.
Space available for immediate tenancy down to 4.8%
Space available for immediate tenancy throughout the Big 7 dropped to a new record low of 4.8% (4.3 million sqm) due to high demand. This reflects a yoy decrease of around 480,000 sqm and a drop of 100,000 sqm from December 2016. We can expect the fluctuation reserve to continue its downward trend for the time being in the light of ongoing strong demand and the fact that only 3 million sqm of new-build space is scheduled for completion in the next thee years, a number that already falls short of the 3.5 million sqm in total office take-up predicted for 2017.
The vacancy rate has already dropped below the 3% mark in Germany’s hotspots Berlin and Munich, where even small-scale space is hard to come by. In many cases, leases in project developments are the only way for occupiers to adequately meet their space requirements. The high pre-leasing rates in both cities of 75% and 88%, respectively, in projects scheduled for completion in 2017 reflect this trend. Vacancy at the moment is also hovering around 3% in Stuttgart and around 5% in Cologne and Hamburg. The steepest drop was recorded in Düsseldorf, where vacancy dropped by 0.6 percentage points to 6.9% in just one quarter. Frankfurt has the highest rate of space available for immediate tenancy among the Big 7 at 11%. This space, however, is not always in line with tenant requirements when it comes to aspects such as layout and fitout.
Rents continue to rise, particularly in premium segment
Prime rents, which have been on the rise in all locations over the past 12 months, continued their upward trend in Munich (up 1.4%) and Berlin (up 0.7%) in Q1 due to strong take-up in the upscale market segment. At €35.50 per sqm, prime rent in Munich is approaching the Frankfurt record high of €37.50 per sqm. Berlin also strengthened its third place position in terms of prime rent at €28.70 per sqm. Cologne remains the most affordable among the Big 7, with prime rent at €21.00.
Higher take-up in stock buildings and in more affordable locations due to limited supply and increased price sensitivity have largely kept average rent levels stable over the past few months. In line with this trend, average rent in Frankfurt remained stable at around €18.70 per sqm. Rents also remained unchanged in Munich (€16.00 per sqm), Düsseldorf (€14.90 per sqm), Stuttgart (€13.00 per sqm) and Cologne (€11.90 per sqm). A slight increase was recorded in Hamburg (up 1.3% to €15.30 per sqm) and Berlin (up 1.2% to €16.50 per sqm). Berlin continues to see the most accelerated increase in rents among the Big 7.
Outlook: 2017 could be another above-average year for take-up
“The upward trend on the top German office leasing markets again picked up speed in Q1. Germany’s mostly crisis-resistant economy and robust job market will continue to drive demand throughout 2017. In light of this trend, we again expect to see above-average office take-up at 3.5 million sqm in 2017,” comments Peter Bigelmaier.