TOP 7 OFFICE MARKETS Q3/2021: Releasing the brakes

In the 3rd quarter companies based in Germany’s top 7 cities became far more willing to sign rental agreements or start construction of their own premises, generating take-up of 824,600 m² of office space. In Hamburg, Berlin, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich take-up of office space during the first three quarters totalled 2.04m square metres. A year on year increase of 17 % took the total past the two-million-square-metres mark. “Results to date and the brisker activity that is expected in the fourth quarter nourish the hope that by and large take-up for the entire year will be satisfactory” says Oliver Schön, spokesperson for German Property Partners (GPP) in his summary of the situation in Germany’s top 7 cities. Partner firms in the GPP commercial property network are Grossmann & Berger, Anteon Immobilien, GREIF & CONTZEN Immobilien, blackolive and E & G Real Estate .

DEMAND IN ALL LOCATIONS

Compared with the situation in the preceding quarter, when year on year take-up figures in the top 7 ranged from -35 % to +52 %, the gap narrowed in the 3rd quarter to between -12 % and +45 %. Just as in the 2nd quarter, results rose in Cologne, Hamburg, Frankfurt and Berlin but fell in Munich, Düsseldorf and Stuttgart. “Cologne, for example, posted the highest growth rate, to pull slightly ahead of its pre-pandemic total. Berlin, however, matched the figures for 2019 only in terms of the number of agreements signed. However, considering that no agreements for office suites larger than 5,000 square metres were signed, it was an achievement to post year on year growth of one-fifth,” remarks Schön. A positive development in Stuttgart, where the steepest drop in take-up was noted, is the newly increased number of agreements, especially for small and mid-sized office suites. “Whereas industrial enterprises used to dominate demand for space in the south, their place has now been taken by IT and telecommunications firms. In view of plateauing new orders and supply bottlenecks although order books are still full, the ifo business confidence index has noted the third successive downturn in the mood of manufacturing company managers. Therefore it remains to be seen when industry regains the pole position in the south,” says Schön. 

offices remain part of the working scene

At the end of the 3rd quarter, despite the upheavals in how people go about their work and the feared rise in company insolvencies, the vacancy rate in Germany’s top 7 cities was still moderate at 4.3 % compared with 3.2 % a year ago. As expected, more space became available at short notice in each of Germany’s top 7 cities, with Munich, Berlin and Stuttgart posting the largest increases.  The vacancy rate was lowest in the national capital at 2.7 % and highest in Frankfurt on Main at 8.3 %. “It would seem, however, that in terms of empty space, Frankfurt has turned the corner,” comments Schön. The number of sub-let agreements also remained far lower than feared. Schön notes that, “Instead of hastily vacating space in order to save rent for a short period, most companies are taking the longer view and examining the future viability of their business models.”

FORECAST: LARGE-VOLUME AGREEMENTS IN THE PIPELINE

In September the ifo employment barometer reached its highest level since October 2018, indicating further market recovery to come. This, combined with the observation that the 4th quarter is traditionally the busiest one, and the fact that talks to finalize agreements for large volumes of space in Berlin, Cologne and Stuttgart are in progress, a realistic forecast for the 4th quarter is between 700,000 and 900,000 m² of take-up. Therefore, the GPP forecasts a year-end total take-up of some 3.0m square metres. This would be well above the 2.5m square metres taken up by new tenants and owner-occupiers in the year dominated by the coronavirus but a long way from 2019, when take-up of 3.9m square metres was noted.