According to international real estate advisors Savills, the lack of development pipeline over the last few years has caused prime rents in the German office market to increased in H1 2014 by 3.3% to €28.00 per sq m on average across the top six markets*. The extent of the change ranged from +8.8% in Munich at €34.50 per sq m to no change in Dusseldorf with prime rents remaining at  €27.50 per sq m.

Savills finds the average rents also increased to €14.57 per sq m during the same time period, which marks a 5.2% increase across the six markets. Cologne record the highest growth of all markets with a double-digit increase of average rents at +13.7% to €13.25 per sq m and Frankfurt was the only market where average rents decreased by 1.4%.

Marcus Mornhart, Managing Director and Head of Office Agency at Savills Germany, comments: “The rise in average rent is due to the high prime rents as well as the lack of suitable space in the city centre locations. Occupiers are therefore moving out to secondary locations causing average rents to rise. We are seeing developers of speculative projects benefitting from the lack of space in the central submarkets of some of the cities such as Berlin and Munich and rents are rising accordingly. We believe this rental growth will continue, albeit it could be at a slower pace than recorded in H1 2014.”

Savills reports that due in part to the lack of suitable product, office take-up in Germany was down by 6% year on year in H1 2014 with 1.3 million sq m transacted compared to 1.4 million sq m in H1 2013. With the exception of Hamburg and Cologne, take-up decreased across all markets albeit to varying degrees. While take up in Berlin and Munich was very close to H1 2013 at -1% and -5% respectively, the decrease in Frankfurt and Dusseldorf amounted to almost a fifth at -18% and -20% respectively. The firm also reports that there was a low number of large-volume transactions. Additionally, due to the lack of prime office space, there was a trend toward lease renewals throughout the first six months of the year.

Matthias Pink, Head of Research at Savills Germany, comments: “Given the favorable economic environment and the employment growth, the subdued demand for office space may seem quite surprising. However, we often find that the letting markets usually respond to economic developments with a delay of six to nine months. We therefore predict an upturn in the letting markets for the second half of 2014 and forecast that total annual take-up could reach 2.8 million sq m by year end, which would represent a slight year-on-year increase.”

Savills finds that despite the relatively low take-up so far vacancies reduced further across all markets as development completions continues to be low, with a large share being pre-lets. On average, across the top six markets, the vacancy rate stood at 7.8% at the end of June, which is 60 basis points below its 2013 level. The lowest vacancy rate of 4.7% continues to be recorded in the Berlin market, whilst Düsseldorf at 10.8% and Frankfurt at 11.6% continue to show double-digit figures.

*Markets covered by the research include Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg and Munich.