A reduction in average vacancy rates across Germany’s top six office markets in the first half of 2013, combined with a 3% rise in prime rental levels in these markets, reflects a growing supply/demand imbalance according to Savills.
A reduction in average vacancy rates across Germany’s top six office markets in the first half of 2013, combined with a 3% rise in prime rental levels in these markets, reflects a growing supply/demand imbalance according to Savills. Vacancy levels across Berlin, Frankfurt, Cologne, Munich, Hamburg and Düsseldorf currently stand at 8.4% on average, down from 9.2% in H112, marking the lowest level recorded since 2002. The international real estate advisor highlights that Berlin, which recorded the lowest vacancy at 5.8%, is the only market to remain stable whilst Frankfurt experienced the greatest year-on-year decline, from 14.7% in H112 to 12.4%.
Marcus Mornhart, managing director and head of office agency at Savills Germany, says: “In almost every city available prime space in central locations have become rare so that fewer options are available to occupiers seeking new premises in Germany. Tenants are therefore forced to renew their existing lease or to switch to alternative space categories. This lack of prime space is also reflected in rising prime rents, which rose on average across the six markets by just below 3% to €27.12/sq m/month.”
In spite of this growing need for new prime space, Savills highlights that obtaining financing for new speculative developments remains challenging with lenders requiring high levels of pre-lets and equity. The only market included in the firm’s survey with noticeable speculative development is Düsseldorf where local investors and private equity buyers provide equity or mezzanine capital for developments.
“The message from Düsseldorf to the other markets is that occupiers are appreciating speculative developments with the two speculative projects ‘Kö-Bogen’ and ‘Dreischeibenhaus’ almost entirely let prior to completion”, comments Marcus Mornhart. “These schemes demonstrate that high-quality space in good locations can enjoy lively demand and occupiers are prepared to pay the underlying rents. I believe that developers can also find similar, favourable opportunities for speculative development in other cities. Equity-rich developers and those with access to financial partners can take advantage of this high demand in the prime sector.”
Overall take-up of office space in Germany’s six major markets reached 1.34 million sq m in H1 2013, according to Savills research, representing a decline of approximately 7% year-on-year. The firm attributes this decline largely to the comparatively few deals of over 10,000 sq m with activity in the over 5,000 sq m category also subdued. Berlin in particular recorded just two transactions over 5,000 sq m in H113, compared with seven in H112, and recorded the greatest decrease in take-up, at -28%. Broken down by city take-up also recorded a decline in Cologne (-8.2%) and Frankfurt (-5%), whilst in Hamburg it remained stable. In Munich and Düsseldorf take-up figures increased by 6% and 15% respectively.
Matthias Pink, associate director of research at Savills Germany, comments: “Major occupiers are in some cases reluctant to rent large new offices with ongoing economic uncertainties, however the demand for small and medium-sized offices has strengthened. Nonetheless, higher turnover in this segment was not able to fully balance the lack of major lettings hence a decrease in take-up has been recorded.”
Going forward Savills expects to see stable take-up levels in the coming months and forecasts total take-up in these markets will reach slightly above 2.8 million sq m by year end, marking an approximately 5% decrease year-on-year. In conjunction with the low completion volume of approx. 940,000 sq m in 2013 this will lead to a further decline of vacancy rates.