According to international real estate advisor Savills latest research, Behind the Boom – what is driving the office investment market in Germany, there are three key elements supporting the upturn in this market: the strength of the German economy; interest rates in the Eurozone and positive office market data such as vacancy rates and prime rents.

Marcus Lemli, CEO of Savills Germany and Head of European Investment, comments: “The German investment market has recently enjoyed a remarkable upturn, particularly in the office sector, where Q3 14 investment volumes increased 31% year on year. This compares to 2008/09 when the German economy was suffering from the consequences of the financial downturn and approximately just 15% of capital invested in European real estate found its way into Germany. Today, German bricks and mortar account for approximately one in four Euros invested in Europe. However, with the decline in take-up in the major German office markets over the last two years, the question is what is driving this boom?"

Savills notes that  the German economy recovered more quickly from the consequences of the financial downturn than some other nations in the Eurozone and is now in a healthier economic condition. In the real estate investment markets, this has earned Germany the status of a European safe haven, resulting in continued above-average inflows of capital into the nation's property market.

Matthias Pink, associate director of research at Savills Germany, adds: “In the 20 years prior to the crisis in the financial markets and the Eurozone, investors in Germany benefited either from economic growth, which resulted in favourable rental income prospects in the office markets, or from low interest rates and the associated low cost of capital. Today, investors can enjoy both healthy economic data and low interest rates. This combination is acting as a catalyst for the nation’s investment market."

Savills states that the figures and trends in terms of vacancy rates and prime rents across the major German office markets make impressive reading. The vacancy rate is at a ten-year low at 7.7% while the prime rents have reached a ten-year high at €27.70 per sq m. However, the primary cause of this is not high demand for space but the extraordinarily low growth in supply in recent years.

Marcus continues: “The limited supply in the German office market is something investors should consider carefully. For while it is highly probable that the German economy and interest rates will sustain their support for the market over the coming years, the current strong rental levels and low vacancy rates may not be sustained in direct proportion to an acceleration in supply growth. Indeed, construction and development activity has recently shown a marked increase. While this may be low in terms of a long-term comparison, the supporting role is nevertheless shifting increasingly to the demand side. In other words, if vacancies are to remain low and rents high, demand must increase. The prevailing circumstances provide a solid backdrop for this to occur.”