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German prime office rents stabilize with positive outlook, as Berlin posts the highest office take up in H1

  • Germany’s top 7 cities post almost 1.2 million sqm in take-up in H1 2021
  • Results come in 25% shy of the 10-year average but outlook is positive
  • Prime rents remain stable while average rents diverge
  • Development pipeline continues to grow with occupancy rates trending slightly higher

Frankfurt/Main, Germany, 28 July 2021 – According to Colliers, leading diversified professional services and investment management company (NASDAQ and TSX: CIGI) roughly 1,177,300 sqm of office space was taken up in Germany’s 7 largest office hubs in H1 2021, reflecting a slight 5.6% drop yoy and falling 25% short of the 10-year average. Market activity, however, varied from location to location.

Stephan Bräuning, Head of Office Letting at Colliers, comments, “As expected, office markets are still being impacted by the pandemic. Although people are increasingly returning to the office as infection rates fall and vaccination rates rise, most companies have yet to finalize their decisions regarding future space requirements, the results of which will have an impact on market performance going forward. A number of companies are currently developing concepts for what they want their future office space to look like and are adjusting their requirement profiles accordingly.”

Discrepancies in take-up considerable among some cities

Similar to Q1 activity, performance on the office markets in the country’s top 7 cities was not uniform. A total of 309,000 sqm of office space was taken up in Berlin in H1, reflecting a slight drop of 6% compared to H1 2020 and coming in 8% shy of the 10-year average. Sentiment on the Berlin market, however, is generally optimistic and a number of companies are currently on the lookout for large-scale space.

Munich took second place with only around 230,200 sqm in take-up, down almost 29% compared to the results posted the in first six months of 2020. Hamburg took third place, posting 213,000 in take-up in H1. Activity in Q2 was somewhat more sluggish, in part due to the fact that a number of larger leases were signed in Q1. Sentiment on the market, however, is generally positive. Take-up in H1 registered a yoy increase of almost 22%. This result, however still fell 10% shy of the 10-year average.

Vacancy continues to rise as expected

The vacancy rate weighted by space rose 30 bps to a currently 4.10%, having come in at a low 3.1% in H1 2020 in contrast. Roughly 3.8 million sqm of office space are currently available for immediate tenancy in the country’s top 7 cities.

The vacancy rate in Berlin rose 40 bps to 2.4% compared to the previous quarter. The city, however, continues to post the lowest vacancy rate among Germany’s top 7 office locations despite this increase.

Substantial occupancy rate as construction continues

More than 1.6 million sqm of office space are scheduled for completion this year. Of this space, 71% has already been taken up, which reflects an increase of 8 percentage points compared to Q1 2021. Based on the current situation, over 5 million sqm of new office space will be completed in Germany’s top 7 cities by the end of 2023. That is roughly 500,000 sqm more than announced at the end of Q1. Stephan Bräuning comments, “Construction activity has picked up and property developers are becoming more optimistic about the future. One potential risk is the current shortage of raw materials and the corresponding rise in prices of construction materials. However, we are not currently seeing any delays on buildings scheduled for completion this year. Demand for high-end office space remains high as well.”

Prime rents stabile, average rents diverge

Prime rents in the country’s top 7 office locations have not shown much movement in the past three months. “The stability of prime rents reflects ongoing demand for high-quality office space in premium locations and tenant’s willingness to pay those prices. Some properties outside the prime category saw a drop in rent prices.” Stephan Bräuning adds.

Average rents, on the other hand, experienced greater movement. Office tenants are paying the highest average rents in Berlin at €27.50 per sqm. This reflects a slight €0.50 drop compared to the first three months of the year (-1% yoy). In contrast, average rents in Frankfurt rose €0.50 per sqm to a current €23.00 per sqm (+2% yoy). Munich came in third with average rents only up a slight €0.20 per sqm, however, to a current €21.10 per sqm (-4.5% yoy).

Outlook: Recovery delayed but still intact

"Economic activity is resuming in Germany and companies are beginning to take a more optimistic stance towards the future. This trend has yet to fully reach the office leasing markets in Germany’s top 7 cities, but sentiment is beginning to brighten in many places. We have recently seen activity around large-scale leases return, and we expect to see a slight recovery across all segments as the year progresses. Nevertheless, the office market is not likely to return to pre-crisis levels by the end of 2021. Berlin, however, is proving the exception here with recovery more rapid on the city’s office markets.” Stephan Bräuning summarizes.


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Stephan Bräuning

Head of Office Letting | Germany

Frankfurt

Working for Colliers International since 2007. In charge of the Large-scale Letting Department in the Frankfurt office, responsible for 6 members of staff. Also representing the German Colliers offices in the Colliers EMEA Office Group. Advised many national and international firms, which have together rented more than 140,000m² of office space. I have extensive knowledge of negotiating tenancy agreements and, besides traditional terms and conditions such as the rent, service charges and incentives, attaches importance to all other economic components of a contract in the client’s interest. I have considerable success specifically with regard to optimising tenancy agreements without a move being entailed. Furthermore, on the property owner side market-leading companies trust me and have entrusted me with the exclusive marketing of their office properties. In all these extensive activities i have acquired comprehensive knowledge of every level of conducting negotiations.

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Susanne Kiese

Head of Market Intelligence & Foresight | Düsseldorf

Duesseldorf

Susanne joined Colliers International Holding GmbH in February 2016 as Head of Research Germany. Before, she worked as a Senior Research Analyst for Hypothekenbank Frankfurt / Eurohypo, a specialist bank for real estate and public finance for almost 12 years. Susanne was also Research Analyst with Deutsche Gesellschaft für Offene Immobilienfonds (DEGI) GmbH, the property related investment company of Allianz Dresdner Property Group (now part of Aberdeen). 

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