Prime rents rise in German office market says Savills

Prime rents across the top six German office markets increased on average by 3.8% year-on-year in the first quarter of 2013 to ?26.98 sq m/year according to the latest research by Savills. The international real estate advisor expects to see ongoing prime rental growth across Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg and Munich during the rest of the year with continued high demand for quality space whilst development activity remains low.

Marcus Mornhart, Managing Director and Head of Office Agency at Savills Germany, says: “We anticipate further moderate rental growth in Germany’s prime office segment going forward in 2013. However, rents in the wider market are unlikely to increase in 2013 with rent-free periods continuing to be perceived as good form even at the prime end of the market. Secondary stock or space in less central locations continues to record rather high vacancies and occupiers are considerably more price-conscious.”

After a strong 2012 the German office market slowed down significantly in Q1 2013 with take-up totalling just below 573,000 sq m in the top six markets representing a year-on-year decrease of almost 20% (from 713,600 sq m in Q1 2012). The firm attributes this decrease primarily to a lower number of large-scale lettings compared with Q1 2012, particularly in Frankfurt, Berlin and Cologne but expects turnover to pick up later in 2013 due to a number of large requirements on the market. Nonetheless, the remaining three markets recorded positive turnover figures of +4.7% in Düsseldorf, +8.4% in Hamburg and +10.0% in Munich compared to Q1 2012.

In terms of vacancy rates, these continued to decline marginally across the six major markets according to Savills data. On average across all markets surveyed, 8.6% of the total office stock was unoccupied at the end of the first quarter, which compares to 8.7% in Q4 2012. In certain market segments office stock is even running short, for example in Frankfurt the firm records a lack of prime space in core locations below 1,000 sq m while in Cologne there is an undersupply of centrally located space in the medium price range.

Savills highlights that this trend of decreasing vacancy rates and surplus demand is due to a slow down in office space coming on the market. Approximately 940,000 sq m of space is scheduled for completion in 2013 in the six markets surveyed, which is just slightly more than was completed in 2003 in Frankfurt alone. Nonetheless, this figure represents a 40% increase compared with 2012 but still remains slightly below the 10-average.

Matthias Pink, associate director of research at Savills Germany, comments: “Given the situation on the financing markets the low completion figures are unlikely to change in the medium term. Financing of speculative developments continues to be scarce and the requested pre-letting rate of 30% to 50% is too high, particularly for small-sized developments.”

Marcus Mornhart adds: ”Specifically as regards smaller sizes between 500 sq m and 1,000 sq m potential occupiers start searching for new space 12 to 15 months prior to the end of their existing lease – too late for taking space in a development yet to be constructed.”

Overall Savills expects German office markets to remain stable with take-up levels set to improve throughout the second half of the year so that an annual total of approximately 2.9 m sq m is likely to be achieved.

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