TOP 7 OFFICE MARKETS Q1/2023: Volume of enquiries is high, but take-up flops

For the first time since the 2nd quarter of 2021 take-up of office space in Germany’s top 7 cities showed no increase. On the contrary, in the 1st quarter of 2023 it decreased year on year by 28 %. During this period take-up by owner-occupiers and corporate tenants totalled 562,600 m². Andreas Rehberg, spokesperson for German Property Partners (GPP), explains that, “When interpreting these figures, several aspects have to be taken into account: one is that the labour market remains robust, more jobs are available than ever before. Another is that, despite new work routines, the office remains the key communication hub for companies and institutions, so that demand is still high. This is reflected in the large number of enquiries we and our partners receive. Whereas in the past few years many large firms made the decision to move to different premises, demand is now dominated by the Mittelstand, although these companies hesitate longer before a final commitment. And we must not forget that take-up in the first quarter is usually on the low side”. Members of the German Property Partners (GPP) commercial real estate network are Grossmann & Berger, Anteon Immobilien, GREIF & CONTZEN Immobilien, blackolive and E & G Real Estate. 

BERLIN TOPS THE TAKE-UP TABLE

Berlin was the only city to avoid the statistical downturn in the 1st quarter, with take-up rising by 4 %. A high proportion of take-up – 58 % – was attributable to rental agreements for space in excess of 5,000 m². The decline in the other cities varied between 22 % in Hamburg and 56 % in Stuttgart. The reason: a lack of owner-occupier transactions and large-volume rentals. At 125,000 m², Berlin posted the highest take-up figure among the top 7 cities. For the first time ever Hamburg (105,000 m²) reported higher take-up than Munich (102,000 m²). Apart from Berlin and Stuttgart, owner-occupiers played practically no role in the top 7 cities and accordingly their share of take-up fell year on year from 102,000 m² to 37,000 m².

DÜSSELDORF’S PREMIUM RENT HITS NEW HIGH

As most of the office space taken up was in centrally-situated, expensive premium properties and new-builds, premium and average rents rose across the board. “In order to be an attractive employer, firms must invest in quality fit-out and office location. Otherwise they are at a disadvantage in the battle for talent. Many tenants are now prepared to pay more for space that conforms to ESG standards, partly because it is a deciding criterion for applicants and partly because building costs have risen so steeply,” says Rehberg. Both premium and average rents have risen most steeply in Düsseldorf, Hamburg and Cologne. In Düsseldorf the premium rent rose by a record 33 % to a new all-time high of €38.00/m²/month. If, in future, prime quality space is available in the centres of top 7 cities, GPP expects premium and average rents to remain stable or rise further. 

UNEVEN DISTRIBUTION OF VACANCIES DEPENDING ON QUALITY OF SPACE 

Year on year the vacancy rate in the top 7 cities has risen from 4.9 % to 5.2 %. In the 1st quarter the lowest volume of office space available at short notice was noted in Cologne, where the vacancy rate was 3.0 %, the largest volumes were posted in Frankfurt at 8.4 % and Düsseldorf at 8.1 %. In both Cologne and Frankfurt available reserves of space declined by 6 %. Sub-letting played a significant role in Berlin, Düsseldorf and Frankfurt. “Whether space stands empty now definitely depends on its location and quality: in the CBD there is frequently no space, but in peripheral locations availability is growing, strongly in some districts. Therefore the owners of buildings that are no longer modern or are in peripheral locations will have to have a lot of work done if they wish to remain competitive on the letting market,” says Rehberg. Construction projects continue in 2023 and 2024 and by the end of March completions in the top 7 cities totalled 3.10m m². 52 % of this total has been pre-let.