• Take-up in the first six months fell by 33% year on year
• Nominal rents remain stable but effective rents are falling
• Occupiers are seeking greater flexibility in leases

The COVID-19 pandemic continues to hold the top seven office markets firmly in its grasp. The second quarter of 2020 in particular was characterised by unprecedented measures to contain the pandemic. One consequence of these was that large sections of office workers in Germany were only able to work from home. Nevertheless, the effects of the pandemic were only reflected in the traditional office market indicators to a limited extent. Take-up in all top-seven office markets plummeted in the first half year totalling 1.3 million sq m, which was 33% lower than in the corresponding period last year.

However, rents and vacancy rates remained largely unchanged. Frankfurt witnessed the largest decline in take-up, with demand for office space falling by 54% year on year. At the other end of the scale, take-up in Munich fell by just 16%. Rents showed more of a mixed picture. Prime and average rents rose in Berlin, Hamburg and Stuttgart. Stuttgart enjoyed the largest increase, with the prime rent rising by 4% to €25 per sq m. In the remaining markets, nominal rents remained stable. “Occupiers are attempting to use the current market situation to negotiate incentives both on lease extensions and new leases. Accordingly, the effects of the crisis are currently only being reflected in falling effective rents and an increasing number of lease extensions,” says Panajotis Aspiotis, Managing Director and Head of Agency Germany for Savills.

Low vacancy rates are having a stabilising effect on the Top 7 markets
One stabilising element in the top seven office markets is the sustained very low vacancy rates. The average vacancy rate stands at just 3.1%. Vacancy rates in Düsseldorf and Cologne even declined marginally by 10 basis points compared with the previous quarter, while those in Munich and Stuttgart rose by 20 basis points. “We expect vacancy rates to continue to increase moderately in the second half of the year. To what extent this will impact rents remains to be seen,” says Matthias Pink, Head of Research Germany for Savills. “However, rising vacancy rates do not inevitably have to result in declining rents. With such a high supply shortage, an increase in vacancy rates could even be a step towards normality,” says Aspiotis. Currently, there are already signs of demand for office space increasing again. While companies remain hesitant when it comes to leasing decisions on space in excess of 5,000 sq m, demand in the size segment below 1,000 sq m is already increasing. Occupiers seeking such space are primarily small and medium-sized businesses, which have short decision-making processes.  

Working from home will not impact office demand in the short term
The dominant issue for companies at present is how to bring their employees back into the office. Other avenues, such as working from home or remote working, are increasingly being explored. However, this will not reduce demand for office space in the short term. A further argument against a decline in office demand is the fact that companies are attempting to reduce their utilisation of floor space in order to implement improved hygiene concepts. This is reflected in the fact that no occupiers are seeking a reduction in floor area when extending leases.

Nominal rents to remain stable despite lower take-up
“The bottom is in provided that we are spared a second wave of infection. However, take-up will be lower than last year owing to the two months in lockdown,” says Panajotis Aspiotis. The vacancy rate in some markets may well increase modestly, albeit from a very low base. “Consequently, we expect nominal rents in the top seven office markets to remain largely stable,” says Aspiotis.

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Market in Minutes Top 7 Office Markets Germany