Pipeline for Q4 promises strong year-end turnover as rising take-ups and uplift in rents continues

Throughout the first nine months of 2015 approximately 2.3 m sqm office space was taken up in the six major German office markets: Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg and Munich which marks an almost 20% increase year-on-year. Over the past twelve months the take-up totalled slightly above 3 m sqm (+5% quarter-on-quarter) – a level last seen in Q4 2012. “After two mixed years we are currently in a recovery phase with rising take-ups, increasing rents and falling vacancy rates”, describes Marcus Mornhart, Managing Director and Head of Office Agency Germany at Savills. “However the positive market sentiment does not extend to all markets – some have to cope with low demand and stagnating take-up.”

After the end of the consolidation phase in the financial sector, levels of demand and take-up below the long-term average have to be expected in Frankfurt in the longer term. Although the take-up of 286,000 sqm at the end of Q3 exceeded the level of Q3 2104 by 15% the turnover of 408,000 sqm recorded over the past twelve months missed the average of the past five years of approx. 440,000 sqm. In addition more than 300,000 sqm of new office space will be brought to the market during the next two years which will intensify the competition for potential new tenants even further. Over half of this space is still available for letting.

The situation in Berlin is completely different. The available supply is far from being able to satisfy the extremely strong demand. The vacancy rate recently dropped to 3.6%. “The information and communication sector with its vital start-up scene absorbs large amounts of space and boosts the rental level – more pronounced than in any other market”, reports Matthias Pink, Director and Head of Research Germany at Savills. The prime rent of € 24.00 reached in Q3 represents a level last seen in the early years of 2000, the average rent increased by 15%.

At the end of Q3 the prime rent stood at € 28.13/sqm on average across the six markets which marks an increase of 3% year-on-year. The average rent rose by 8% to € 15.07/sqm. “Hence for the first time the average rent has passed the € 15 mark – this demonstrates that the recovery enjoys a sound base”, says Mornhart. The rental increases are likely to continue beyond the end of the year. On the one hand this is due to the fact that the supply is steadily reducing. The vacancy rate dropped significantly across all markets throughout the past year and stood at 7.1% at the end of September. On the other hand the situation on the supply side is unlikely to improve significantly in the medium term. The 2015 completion volume of 1.07 m sqm is almost fully pre-let. Of the slightly higher amount of 1.15 m sqm of newly completed office space scheduled for 2016 only two thirds are available for letting. Therefore the rents are likely to rise further in the medium term as well.

In all six markets there are a number of major searches in the market with a strong probability that many will be concluded prior to the end of the year. The total take-up of space in 2015 is expected to come to 3 m sqm. This would mark a 10% plus on 2014 and represent the strongest year since 2012. However, three years ago the rents were approximately 8% lower and the vacancy rate stood at just below 9%.

German office markets Q1 - Q3 2015 (JPG)