- Around 2.0 million sqm of office space taken up in Germany’s top 7 markets since start of year
- Results fall 16% short of 10-year average
- Vacancy rate up 20 bps to 4.3%
- Rent prices largely stable
Frankfurt/Main, 5 October 2021 – According to Colliers, 868,000 sqm of office space was taken up in Germany’s 7 largest office hubs between July and September, putting total take-up results this year to date at 2,039,200 sqm. Although these results fall 16% short of the 10-year average, the difference at the mid-year mark was much more pronounced at 25%. Results for the first 3 quarters of the year are up 10% yoy, indicating that recovery on the office market is gaining momentum. The weighted vacancy rate continued to rise slightly to a current 4.%.
Stephan Bräuning, Head of Office Letting Germany, comments, “Momentum during the summer months picked up slightly on many office leasing markets. A growing number of companies are on the lookout for suitable office space. High-end space that enables companies to create their version of the office environment of the future is particularly popular. Despite the slight upturn, the markets continue to feel the impact of the pandemic and activity remains below pre-crisis levels.”
Space in high demand with public sector
Activity at the moment tends to vary considerably based on sector. The public sector has been very active in Germany’s top 7 office markets this year to date, snapping up around 345,000 sqm of office space, often in the context of large-scale single-asset transactions. This corresponds to roughly 17% of total take-up with the public sector accounting for just around 6% in terms of number of leases signed. The average unit size leased by the public sector was around 2,600 sqm.
“The public sector remains a key player driving demand in the office segment. It claimed its highest market share in Cologne with 39% of total take-up and accounted for roughly 10% in both Hamburg and Frankfurt. As the public sector is not vulnerable to cyclical trends, the impact of the pandemic on its activities has been generally low, which explains the sector’s high current market share in the country’s top 7 leasing markets. Consulting firms as well as ICT companies also recorded double-digit market shares of just under 11% each. The number of leases signed in business centers declined significantly. With a current market share of 1.5%, business centers are only playing a minor role on the office leasing markets. Prior to the pandemic, business centers accounted for a much larger share of take-up,” comments Stephan Bräuning.
Pronounced differences between top 7 markets
Berlin once again recorded the strongest take-up result at 521,000 sqm (+3.6% yoy). The city also posted the lowest vacancy rate at just 2.6%, which nevertheless reflects an increase of 120 bps yoy. Average rents were down 60 cents yoy to €27.30 per sqm and prime rents fell 10 cents yoy to a current €39.70 per sqm. Thanks to a number of high-priced leases, however, prime rents were up 80 cents compared to the previous quarter.
Munich generated the second highest take-up result with 440,200 sqm (-5.2% yoy). Unlike the situation in Berlin, both average and prime rents were up 70 cents to €22.40 per sqm and 30 cents to €39.80 per sqm, respectively. And results experienced an even more pronounced increase compared to the previous quarter with prime rents up 80 cents per sqm and average rents up a significant €1.30 per sqm. The vacancy rate in the city increased a considerable 160 bps yoy to a current 4.7%.
Hamburg came in third with 363,900 sqm (+50.7% yoy) in office take-up. This significant increase was accompanied by rising prime and average rents. Prime rents rose 50 cents compared to the previous quarter as well as in a yoy comparison to a current €30.50 per sqm. Average rents experienced an impressive 80-cent yoy increase to a current €17.90 per sqm and remained stable compared to the previous quarter. The vacancy rate also rose slightly, however, to a current 3.6%.
Frankfurt recorded 253,900 sqm in take-up (+24.7% yoy). Although prime rents were down 50 cents yoy, they remained constant compared to the previous quarter. Frankfurt continues to post the highest prime rents among Germany’s top 7 office hubs. Average rents in the city were up 80 cents yoy to €23.50 per sqm with a slightly lower increase of 50 cents compared to the previous quarter. Unlike Germany’s other top 7 markets, Frankfurt’s vacancy rate did not rise but instead remained stable at the previous quarter’s 7.7%.
Düsseldorf posted 193,000 sqm in take-up (-4.0% yoy) with rent prices stable. Prime rents in Düsseldorf finished out Q3 at €28.50 per sqm, consistently in line with previous-quarter and previous-year levels. Average rents were up 20 cents to €16.60 per sqm compared to the previous quarter, also in line with previous-year levels. The city’s vacancy rate, on the other hand, rose to 6.9%, up 150 bps yoy.
181,000 sqm of office space have been taken up this year to date in Cologne (+36.1% yoy). Despite the pandemic, Cologne has managed to catch up quickly in terms of average rents and even exceeded results in Düsseldorf with average rents in Cologne up €2.80 per sqm to a current €17.30 per sqm yoy. Cologne also recorded a slight 30-cent increase compared to the previous quarter, which can be attributed to the lack of available space in the city. Companies often had no choice over the course of the year but to lease higher-priced newly built properties as they were unable to find adequate stock properties. Prime rents in the city were up 75 cents to €25.75 per sqm yoy, remaining in line with previous-quarter levels. The vacancy rate was up a slight 20 bps yoy to a current 2.9%.
Similar to the city’s standing at the end of H1, Stuttgart recorded the lowest take-up result in Q3 with just 86,200 sqm this year to date (-10.7% yoy). Although activity in the city did pick up in Q3, the market continues experience an absence large-scale deals. Rent prices were down as well. Prime rents dropped 50 cents to €25.00 per sqm and average rents were down €1.00 to €15.80 per sqm yoy. Rent prices remained stabled compared to the previous quarter and the vacancy rate increased 120 bps to 3.3% yoy.
Demand for space at property developments remains high
Even though activity has not yet returned to pre-pandemic levels, the market is in good shape. As a result, property developers remain confident and planned developments are proceeding as scheduled. Just under 1.2 million sqm of new office space is scheduled for completion in Germany’s top 7 office hubs by late 2023. The development pipeline was stocked with almost 150,000 sqm less space as at the end of H1. The occupancy rate has risen as well to over 75% for space scheduled for completion in 2021. The occupancy rate for space scheduled for completion by the end of 2023 also already comes to 54%.
“Property developers are optimistic, as demand for space in planned property developments remains high. Many occupiers are in the process of planning their future space requirements and redesigning their office environments. Property developments and buildings with flexible floor plans are a particularly good fit for tenants looking to realize their plans. The vast majority of property developments are continuing as scheduled with the pandemic no longer proving an obstacle. The greater risks at the moment are disrupted supply chains and a lack of building materials, but property developers appear to have the situation well under control,” says Stephan Bräuning.
ESG criteria increasingly important, but not yet shaping market activity
Sustainability has become an important factor in real estate, as the sector has a significant role to play in decarbonizing the economy.
Stephan Bräuning comments, “ESG is definitely a relevant issue for many tenants and there is high demand for modern, energy-efficient space that will enable companies to reduce their carbon footprint. ESG has not yet become such a dominant factor on the market that companies are avoiding older stock buildings altogether, but most companies that are considering older stock properties do tend to be interested in refurbishment. More and more companies are definitely paying attention to sustainability aspects when it comes to newly let property developments.”
Outlook for the remainder of 2021
Activity on most of Germany’s top 7 office leasing markets has gained momentum in the past 3 months. A larger number of large-scale deals were signed for over 5,000 sqm, more so than in the previous year. “Although activity on the markets is picking up momentum in most of the country’s top 7 office hubs, it’s important not to be overly optimistic. Take-up has picked up yoy, but pre-crisis levels are still out of reach. Nevertheless, thanks to the improved outlook on some leasing markets, we have decided to slightly increase our forecast regarding total 2021 take-up to just under 3 million sqm,” concludes Stephan Bräuning.