According to the latest research by Savills, a shortage of prime central office space has pushed the average prime rent across Germany’s top six markets (Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg and Munich) to €27.70 per sq m, the highest level since 2001.
According to the latest research by Savills, a shortage of prime central office space has pushed the average prime rent across Germany’s top six markets (Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg and Munich) to €27.70 per sq m, the highest level since 2001. The international real estate advisor finds that, excluding Hamburg, all the other markets recorded rising prime rents over the past twelve months, with Berlin, Cologne, Düsseldorf and Frankfurt recording an increase of more than 5%.
Savills notes that the high average prime rental level was reached despite a decrease in take-up across Germany’s six major office markets, which totaled approximately 2.78 million sq m in 2013, 10% less than in 2012. This resilience in rents is partly a result of a continued below-average completion volume in 2013. In total approximately 860,000 sq m of office space was delivered throughout these six markets in 2013 and, whilst this marks a notable increase on 2012 (at circa 670,000 sq m), it still comes below the five-year average figure of 1 million sq m.
Marcus Mornhart, managing director and head of office agency at Savills Germany, says: “Many potential occupiers are competing on the few available prime developments, which is placing upward pressure on the achievable rents for these properties.”
He adds: “The real message of 2013, however, is that the German office market took another step towards becoming a landlords’ market. In spite of a decrease in take-up the vacancy rate reduced by one percentage point to 8.0% on average across the top six markets and, particularly in central locations, tenants are facing an acute shortage of space. This has resulted in occupiers favouring decisions to renew existing leases.”
Average rents also rose, according to Savills data, particularly towards the end of the year and exceeded 2012 levels by 2.2% but overall the rental rise recorded in the prime sector did not extend to the wider market. Companies looking for office space beyond central locations have more choice with a much greater volume of available supply. Consequently, rents on Germany’s peripheral submarkets decreased in the majority of the cities, stabilising towards the end of the year.
Going forward the firm expects take-up in 2014 to rise boosted by the improved economic dynamics anticipated in Germany and Europe. Particularly major occupiers, who have been reluctant to make relocation decisions in 2013, are set to play a more significant role again this year so that an annual total take-up of at least 2.9 million sq m is realistic. This forecast is in line with the ten-year average.
Matthias Pink, in the research team at Savills Germany, comments: “We believe the period of consolidation in German office markets is complete and expect to see increased take-up figures in 2014. As a result of the improving economic environment, including on the financing side, construction has started on a number of developments. This will boost supply and hence we expect 2014 rental levels will rise moderately at best and vacancy rates will reduce at a slower pace.”