GERMAN OFFICE MARKET
Sezen Guener
Associate Director | German Real Estate Investment & Funds at Macdonald & Company
Germany’s unemployment rate is decreasing. In October last year, it was reported that the total number of jobless people was 185,000 people lower than the same month in 2017. This, amongst other factors, has resulted in the German office market experiencing an abundance of activity, concluding in high investor interest, rapidly reducing vacancy rates, increasing tenant demand and rising rents!
Savills reported that office property accounted for 45% of overall investment in 2018, the highest proportion over the last decade! What makes this even more impressive, is that the total transaction volume surpassed €60bn for the first time on record, reaching €60.4bn. This is expected to break the €50bn mark again in 2019, which although a reduction, is still significant.
JLL reported that the vacancy rate in each of the ‘Big 7 Cities’ (Hamburg, Berlin, Munich, Frankfurt, Cologne, Stuttgart and Düsseldorf) fell by a double-digit rate in 2018, standing at an average of 3.6% at the end of the year.
CA Immo, a specialist in office property in Central European capitals, has reported a record high for office rentals, with their German portfolio boasting a 99% occupancy rate. In the second half of 2019, CA Immo will complete three office development building projects in Berlin – all of which have a pre-let of 70-100%. This is a clear demonstration of the sheer demand across the main cities and how lucrative investment, development and management opportunities are.
Demand is only growing and the development of new office space can’t keep up with the pace. The number of start-ups flocking to the country – with Berlin, in particular, being a popular choice – is considerable. Young creators, entrepreneurs and founders are heading to the German capital to be part of a healthy growing ecosystem. The city offers affordable living, a large talent pool, access to financing, a lively culture and strong coworking hubs such as Betahaus, Factory and Mindspace, among others.
The demand significantly outweighing supply has resulted in rental prices in the Big 7 increasing significantly. BNP Paribas has reported prime rental value increases of +9% in Hamburg and Berlin and +7% in Frankfurt in 2018.
It’s exciting to see the activity across the country and it will be interesting to watch the market develop further this year.