Take-up recovers following phase of stagnation - Reduction of vacancies and rental growth continue

Throughout the first half of 2015 over 8% more space than in H1 2014 was transacted in the six major German office markets Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg and Munich. Take-up totalled 1.45 million sqm and hence slightly exceeded the result of the strong year 2011 (H1 2011: 1.44 m sqm). All markets recorded increased turnover with Düsseldorf (+ 41%) and Hamburg (+ 13%) even reaching double-digit growth. The rolling take-up over the past twelve months totalled 2.8 m sqm and hence exceeded the reference figure of three months before by circa 3%. “Following several years of stagnation the recovery on the German office markets enjoys a broad basis as both a number of large-volume transactions and various lettings in the medium-sized category between 1,000 sqm and 5,000 sqm took place”, summarizes Marcus Mornhart, Managing Director and Head of Office Agency Germany the current market situation.

One of the most significant developments of the past few years is the continuously declining vacancy rate across all markets. After a level of 10% at the end of 2010 it stood at 7.4% on average across the six markets at the end of June 2015 which marks a decrease of 20 basis points quarter-on-quarter. One of the reasons of this reduction of supply is the comparatively low completion volume of the recent years (average over the past three years: 0.85 m sqm p.a.). “Particularly for large-scale requirements this means that in most cases these can be satisfied in developments only”, outlines Marcus Mornhart. “Although the development activity has increased recently it remains low given the continuously restrictive financing terms for developments as well as the strong competition with residential developers who are often able to pay higher land prices”, adds Matthias Pink, Director and Head of Research Germany at Savills. The scheduled completion volume for 2015 and 2016 is slightly above 1 million sqm each.

The shortage of attractive space has affected the rental levels, too. Both the prime and average rent continued to rise over the past twelve months. While the prime rent increased by 1% to € 27.74/sqm the average rent rose by 6% to € 14.28/sqm. As 70% of the newly completed office space which has come onto the market this year to date and in the remainder of the year are pre-let further rental increases have to be expected not only for the remainder of the year. “There are many reasons to believe that the phase of rental growth which is lasting for several years now will not yet come to an end. For tenants this means that they should enter into long-term leases”, recommends Mornhart and adds: “For landlords it may be preferable to rather agree shorter-term contracts in order to benefit from the rental growth.”

As in all locations major requests for office space are in the market the total take-up for 2015 will at least reach the mark of 2.8 m sqm and hence exceed the 2014 level (2.7 m sqm). In case some of the very large requests can be satisfied throughout the year this mark may even be significantly surpassed.