• Vacancy rate down by 0.5 percentage points during the year to 3.1%
• Prime rent up by almost 9% compared with 2018 to €33 per sq m
• Completion volume to rise to almost 2 million sq m this year, which is likely to slow rental growth and the decline in vacancies
• Market environment to remain landlord-friendly and challenging for occupiers in 2020

From an occupier's perspective, conditions in the major German office lettings markets became increasingly challenging during the course of 2019 and remained so until the end of the year. The average vacancy rate across the top seven markets of Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart stood at 3.1% at the end of December (-0.1 percentage points compared with Q3 19), reaching its lowest level since 1992. Conversely, office rents rose to their highest level in almost thirty years. The average prime rent across the top seven cities at the end of 2019 stood at around €33 per sq m. “In most cities, there is little hope of a noticeable improvement in the supply shortage for occupiers in 2020. Nevertheless, more office space will be completed in almost all cities compared with last year.

Consequently, the rate of rental growth and the decline in vacancies is likely to diminish,” says Panajotis Aspiotis, Managing Director and Head of Agency Germany for Savills, previewing the year ahead.

The supply/demand discrepancy is likely to slowly dissolve while rents will initially rise further
Approximately 1.3 million sq m of office space was completed last year, which was almost completely let by the end of the year. This year, almost 2 million sq m of new office space is expected to come to the market, of which around three quarters is already pre-let. “Despite the high pre-let rate, development projects are expanding office occupiers’ options since many pre-lets involve relocations, which will free up existing space,” says Matthias Pink, Head of Research Germany for Savills, adding: “The higher completion volume is opposed with lower growth in the number of office employees according to current projections. The stark discrepancy between strong growth in demand and modest growth in supply, which has persisted for almost ten years, should slowly dissipate over the coming two years,” Berlin will see a particularly strong increase in completion volume, with approximately 730,000 sq m of office space scheduled for completion this year, which is around twice the volume completed last year. Nevertheless, Savills expects further moderate growth in prime rents in the German capital, particularly since occupiers’ requirements in terms of the quality of location and space are increasing. Savills expects prime rents across the top seven cities to increase by an average of 3% to 4% in 2020, which would equate to half the growth witnessed last year.

Take-up remains at very high levels with weaker activity in the manufacturing sector
Take-up, which totalled almost 4 million sq m across the top seven cities last year, is likely to be somewhat lower this year owing to the afore-mentioned lower growth in the number of office employees and weaker economic activity. The three sectors with the highest share of take-up last year were ‘knowledge-intensive services’, ‘information and communication‘ (each with 14%) and ‘retail and logistics’ (13%). The manufacturing sector has been and remains the most affected by the weaker economic activity and accounted for less than 8% of overall take-up, which is somewhat below the five-year average (10.2%).

The situation for occupiers will remain equally strained in 2020
“While individual parameters will change, the overall situation for office occupiers will remain largely unchanged this year. More specifically, this means tenants will have to adjust to the sustained supply shortage, the corresponding intensive competition for the limited space available and continued very high rental levels. For occupiers seeking high-quality space in good locations, we continue to largely advise pre-lets in developments with the allowance of an appropriate lead time,” says Aspiotis, summarising the occupier’s perspective for the year ahead.

The corresponding “Top 7 Office Markets in Minutes” and key office market indicators can be downloaded:
Market in Minutes - Top-7 Office Markets Germany