• Modest decline in take-up of 3% compared with last year
• Vacancy rate up by 30 basis points compared with the previous quarter to 3.8%; prime rents down by 1% to €35.32 per sq m/month
• New-build office volume of 1.6 million sq m by 2022; 65% pre-let rate

The COVID-19 pandemic continues to shape activity in the top six office markets in Germany. Compared with previous quarters, however, there are signs that occupiers are once again looking to the future with more confidence even if uncertainty remains with regard to geographically flexible working. Many desk workers can envisage themselves working remotely a few days per week but also appreciate that the office is a crucial pillar of their working environment. Take-up in the top six office markets fell modestly year on year by 3% to 653,500 sq m. However, the first quarter of 2020 was still largely characterised by the pre-pandemic reality. A comparable quarter, at least in terms of measures to contain the pandemic, was the second quarter of 2020. Office take-up in the first quarter of 2021 was approximately 25% higher than in this quarter.

Public sector remains the dominant player in the office market
The public sector also continues to provide stability in the office market, accounting for a total of approximately 136,000 sq m of office lettings in the first quarter of 2021 or around a fifth of take-up. The public sector was particularly active in Cologne, accounting for approximately 37% overall take-up. In Frankfurt am Main and Hamburg, the public sector was responsible for approximately 30% of office lettings. “The public sector is currently benefiting from its status as a secure tenant. In addition, it covers a wide variety of requirements as an occupier and is, therefore, prepared to complete lettings in a variety of locations and qualities of property. Consequently, it is currently very popular with landlords,” says Panajotis Aspiotis, Managing Director and Head of Agency Germany for Savills. Overall, it was evident that, in cities where the public sector accounted for an above-average share of lettings, quarterly take-up also increased year on year. Cologne registered the sharpest increase of 127%. Rents remained largely stable in the top six office markets. Only in Berlin did the prime and median* rents show a marginal decrease. Across all top six markets, the prime rent fell by 0.8% compared with the previous quarter to €35.40 per sq m/month. The median rent*, meanwhile, rose by 1.9% to €17.71 per sq m/month.  

New-build projects in demand from occupiers owing to their flexibility  
The average vacancy rate across the top six office markets currently stands at 3.8%. This represents an increase of 30 basis points compared with the previous quarter and 63 basis points year on year. Munich witnessed the strongest increase of 60 basis points. Cologne is the only top six city where the vacancy rate fell.

One reason for the increase in vacancy rates is the high development completion volume. Some 1.75 million sq m of office space was completed in 2020, which is approximately 75% above the ten-year average. This illustrates that the effects of the COVID-19 pandemic were only negligible in the construction sector while demand in the office market has been relatively low in recent quarters owing to the contact restrictions and uncertain economic situation. That will also be the case this year. Take-up in 2021 is likely to come in below the average total between 2015 and 2019 (3.6 million sq m). In contrast, the completion volume will be significantly above average at 1.6 million sq m (average from 2015-2019: 0.9 million sq m), of which approximately 65% is already pre-let. This does not mean, however, that the vacancy rate in new-build projects will rise. “New-build developments with modern fit-out remain in demand. Particularly in view of the current uncertainty in terms of future office space requirements, occupiers are currently focusing strongly on quality and flexibility of design options. They are also willing to pay premium rents for this,” says Aspiotis.

Letting activity expected to increase over the remainder of the year
It is currently noticeable that the office market is stabilising at the present level. In the remainder of the year, however, there may be a catching-up process. Owing to the uncertain economic situation, many companies have paused their leasing decisions for the time being and put their expansion plans on hold. “With greater clarity as the pandemic progresses, however, companies will become more active once again, generating more demand in the office market. In particular, occupiers are now conscious that workplaces will have to fulfil the requirements of a traditional office while also being conducive to remote working going forward,” says Dr Martin Kern, Senior Consultant Research for Savills. “However, since companies require a lead time for their plans, we do not expect any noticeable increase in letting activity before the second half of 2021,” adds Aspiotis.

*The median rent is the average rent across all letting transactions. Hence, 50% of all lettings lie above the median rent and 50% lie below it. However, the size of the space in each letting is not factored into the weighting when calculating the median rent.

Find out more:
Market in Minutes Top 6 Office Markets Germany