Savills: Germany’s ‘big six’ office markets show rental growth declining vacancy

Current vacancies across the top six markets total 2.9 million sq m of office space, representing a vacancy rate of 3.5%. This is 110,000 sq m or 10 basis points lower than at the end of the first quarter. There is a particularly acute shortage in highly sought-after locations such as city centres and B-locations with good infrastructure.

As a result of this demand, space on upper floors that has been used by retailers to date is now being converted to office space.

“All markets are proving extremely robust and showing high levels of take-up, rising rents and falling vacancies,” says Panajotis Aspiotis, Managing Director and Head of Agency Germany for Savills.

There is particular momentum in the Hamburg and Duesseldorf markets, which registered the highest increases in take-up year-on-year of 46% and 22% respectively. Take-up across the top six markets rose by 7% to 1.75 million sq m.

“The change of use of this space in attractive locations is a logical consequence of higher and higher office rents combined with a scarce supply and the fact that this space is fundamentally difficult for retailers to exploit,” says Fabian Sperber, Associate Research for Savills Germany.

In addition to smaller, centrally-located offices, there is also a lack of large, contiguous space. “Lettings in the segment above 3,000 sq m are only possible with long lead times of at least two years and in development projects,” says Aspiotis, adding: “In view of the supply shortage, more and more companies are seeking to extend their leases on their existing space, provided that this space continues to meet their requirements in terms of size and fit-out.”

The increase in rent is also normally lower on a lease extension than on a new letting. Rental levels continue to trend upwards. The average prime rent across the top six cities rose by 1.6% compared with the previous quarter to €32.50 per sq m/month, while the average rent increased by 2.3% to €18.50 per sq m/month. The prime rent on a new lease is currently 16% higher than five years ago (average rent +29%).

New office space will total almost 1.3 million sq m in 2019 and 2 million sq m in 2020, which is significantly above the 10-year average (0.95 million sq m). However, only 19% and 40% of this remains available respectively. Savills therefore expects rental growth to total between 3.5% and 4% by the end of the year. The vacancy rate is expected to fall marginally further while take-up is expected to come in close to last year’s total (3.75 million sq m).

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