The study – which has analysed the office real estate markets of 15 major German cities in its latest study – concludes that a strong increase in office employment numbers has led to an increasing office space shortage. On average, for each additional office employee, only 10 square meters of new office space has been created – well below the 15 or more square meters required, according to Empira Group.
Prof. Dr. Steffen Metzner, the study’s author and Head of Research of the Empira Group, explains:
“The developments on the commercial real estate markets are overshadowed by the near-daily discourse about housing shortages and the regulation of residential markets. Commercial investments are considered straight forward and building lots and lettable spaces plentiful. In reality, however, we have seen an increasingly fierce competition, particularly for office properties. This offers enormous opportunities to investors as well as developers, depending on the location.”
Over the period of consideration, the report tracks changes in office employment numbers, rent levels, yields and vacancies and concludes with a ranking of the different markets from the viewpoint of developers and investors.
Large divergence on vacancies and rents
Across Germany, the study finds an average office vacancy of currently 4.1% – having continuously decreased since 2010. Contrary to previous years, the average vacancy level in Germany’s top 7 markets has been below the nation-wide rate since 2015. The analysed 15 markets ranged from 1.6% vacancy in Bonn to 7.4% in Frankfurt. Apart from Frankfurt, Dusseldorf, Leipzig and Dresden, all other considered markets feature vacancy levels below 5%. Compared to 2010, vacancy rates decreased in 14 out of the 15 cities, with only Essen witnessing a slight increase to now 4.6%.
Even larger than the differences in vacancy rates between office markets are the variations in rent levels. Average rents range from 21.18 €/m² (Munich) to 9.49 €/m² (Leipzig), while top rents vary from 41.18 €/m² (Munich) to 14.00 €/m² (Essen). This broad gap is caused inter alia by extremely different price growth dynamics over the past years. For instance, average office rents in Berlin grew by 71% since 2013, while the increase in Bonn was close to 11%. On an annual basis, average office rents in Berlin grew by about 11%, compared to roughly 2% in Bonn. By comparison, overall price inflation in Germany since 2013 averaged 1.1% annually.
Lahcen Knapp, CEO of the Empira Group, added:
“Many institutional investors do prefer office properties in top locations of major German cities. However, they hardly find any more offers at acceptable prices. It only takes a quick glance at the vacancy levels our study contains to underline the increasing shortage of product. That is why we have been seeing a clear trend towards develop and hold, that is developing directly for an institutional portfolio.”