market in minutes - germany office markets - q1 2016

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Market in MinutesGermany office markets Q1 2016

Savills World Research Germany offices

The facts at a glanceTake-up is still rising but the supply shortage is stifling growth

■Office take-up in the top six office markets totalled almost 800,000 sq m in the first quarter of 2016, surpassing the very strong corresponding quarter last year (Graph 1).

■Although this result may initially appear unsurprising in view of the rising population and employment figures as well as the growing economy, the situation is far from straightforward. While office demand is rising in all six markets, the currently very scarce supply is beginning to stifle growth.

■The vacancy rate in the first three months of the year fell by an average of 30 basis points across the six markets to 6.5% (Table 1). In view of the foreseeable urban growth combined with the continuing low completion volume in the office sector (Graph 5), vacancy rates should continue to decline. In central locations of some cities, there is scarcely any available space even at present, which explains why such locations’ share of take-up has long been in decline (Graph 4).

■Property owners are undoubtedly among the beneficiaries of this trend. Not only are vacancies at their lowest level for 15 years, rents are also at the upper end of their 10-year range (Graph 6) and growth is expected to continue.

■For occupiers, however, the market environment is becoming increasingly challenging. They can often only expand their office space with long lead times and at higher rents or by accepting lower quality space and/or locations.

Q1 2016


Market in Minutes | Germany Office Markets

Top six office markets at a glanceIn the first quarter, just 22% of take-up applied to central submarkets

0.77

0.71

0.69

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2016*

mill

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Take-up, quarterly (left axis)Take-up, past 12 months rolling (right axis)

GRAPH 1

Take-up in the top 6

TABLE 1

Key office market figures

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1

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er s

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th

Prime rent - Ø Top 6 (left axis)Average rent - Ø Top 6 (left axis)Vacancy rate - Ø Top 6 (right axis)

GRAPH 2

Rental levels and vacancy rate

Source: Savills / * forecastSource: Savills / * forecast

Source: Savills

0

500

1,000

1,500

2,000Berlin

Düsseldorf

Frankfurt

Hamburg

Cologne

Munich

past 12 months past 5 years

GRAPH 3

Take-up per transaction

15%23% 27% 29% 25% 22%

85%77% 73% 71% 75% 78%

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2011 2012 2013 2014 2015 2016 Q1

central submarkets remaining submarkets

GRAPH 4

Share of take-up in central submarkets*

Source: Savills / * central submarket of each Top 6 market (Berlin: City East and City West)Source: Savills

Take-up(sq m)

Vacancy rate (%)

Prime rent (€ per sq m/month)

Average rent (€ per sq m/month)

Q1 16

against Q1 15

Q2 15 -Q1 16

against Q1 15 - Q4 15

Q1 16

against Q4 15

Q1 16

against Q4 15

Q1 16

against Q4 15

Berlin 240,900 +9.2% 961,100 +2.2% 3.5 -10bps 24.50 +0.8% 15.10 +2.0%

Düsseldorf 93,000 +34.8% 438,600 +5.8% 9.7 -20bps 26.00 +/-0.0% 14.50 +2.1%

Frankfurt 115,300 +35.3% 422,300 +7.7% 9.1 -110bps 38.00 -2.6% 19.30 +1.6%

Hamburg 108,000 -16.7% 505,300 -4.1% 5.4 -10bps 25.00 +/-0.0% 14.60 +0.7%

Cologne 60,800 -11.7% 283,600 -2.8% 6.5 -0bps 22.50 +2.3% 13.05 -0.8%

Munich 177,000 -5.5% 740,300 -1.4% 4.7 -0bps 34.00 +/-0.0% 16.25 +0.9%

Top 6 795,000 +4.5% 3,351,200 +1.0% 6.5 -30bps 28.33 -0.2% 15.47 +1.1%

Q1 2016



Top six office markets at a glanceDevelopment pipeline in 2016 slightly above-average at approx. 1.0m sq m

GRAPH 5

Development pipelineGRAPH 6

Development of prime rents

Source: SavillsSource: Savills

Location Tenant Office space (sq m)

Frankfurt ECB approx. 17,800

Munich MorphoSys approx. 13,500

Cologne City of Cologne approx. 12,200

Berlin KPMG approx. 11,900

Frankfurt SAP approx. 10,000

Munich EDF GmbH Engineering & Design im Fahrzeugbau approx. 10,000

Munich City of Munich approx. 8,600

Berlin Zalando approx. 8,200

Munich Private school approx. 6,800

Frankfurt City of Frankfurt approx. 6,700

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sq m

Office completions Office space under construction / Pipeline

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Berlin Düsseldorf Frankfurt Hamburg Cologne MunichE

UR

/ m

²

Range 2006-2015 Average Current In 6 months

TABLE 2

The largest letting transactions in Q1 2016 at a glance*

Source: Savills / * only published transactions are shown

Q1 2016



BerlinLow supply and development pipeline | Rents increase significantly

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GRAPH 7

Take-up

City outskirts49%

East/North/South/West

21%

East/North/South/West

21%

City West5%

Potsdamer Platz / Leipziger Platz

4%

GRAPH 9

Take-up by submarket*

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1

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Prime rent (left axis) Average rent (left axis) Vacancy rate (right axis)

GRAPH 8


Source: Savills / * forecast

123,

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

sq m


GRAPH 10

Development pipeline

Source: Savills


Source: Savills / * past 12 months

• The Berlin office market is characterised by a scarce supply of space combined with the (excessively) small number of development projects. Consequently, rents are rising once again. The prime rent rose by 7.5% compared with the corresponding quarter last year to €24.50 per sq m/month, while the average rent gained 8.6% to reach €15.10 per sq m/month.

• Despite the increasingly scarce supply of office space, take-up rose by 9% compared with the corresponding quarter last year to 240,900 sq m. However, in view of the supply shortage, it is evident that tenants are increasingly tending to prolong existing leases and make more efficient use of existing space.

• While around 226,000 sq m of new office space will be completed in 2016, 63% of this is already pre-let. The pipeline for the following year comprises around 200,000 sq m of new office space. As a result, rents will continue to rise for the foreseeable future while the vacancy rate is likely to fall below 3%.

Berlin market in minutesVacancy rate falls to 3.5% and the trend is set to continue

Q1 2016



DüsseldorfLawyers dominate lettings in CBD | Occupiers increasingly sign longer lease terms

77 117

75 68 53 61 55 69 101

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GRAPH 11

Take-up

Harbour21%

Seestern13%

Kennedydamm13%City centre

11%

Düsseldorf North / Airport

7%

other submarkets

35%

GRAPH 13


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GRAPH 12



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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

sq m


GRAPH 14


Source: Savills



• The supply of office space in Düsseldorf is scarce across all size categories and particularly in the city centre. Even office space below 1,000 sq m is becoming increasingly difficult to acquire. In the central locations, the market is threatening to become a landlords’ market. However, vacancy rates continue to decline across the entire market. Over the last twelve months, the vacancy rate has fallen by 120 basis points to 9.7%.

• In line with recent years, law firms are among the largest demand groups in the city centre. These accounted for around 15% of take-up over the last twelve months (Q2 14 to Q1 15: 10%). Banks, on the other hand, are increasingly withdrawing from central locations, often to reduce costs.

• Since rents are expected to continue their upward trend and supply remains scarce, tenants are increasingly prepared to agree longer lease terms than the standard five years.

Düsseldorf market in minutesSupply shortage in the city centre intensifies

Q1 2016



FrankfurtRequirments of more than 250,000 sq m in the market | Rental level keeps stable

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89 75 85 122

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GRAPH 15

Take-up

Banking district / City33%

Eschborn12%

Frankfurt West10%

Westend10%

Frankfurt South8%

other submarkets

27%

GRAPH 17


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GRAPH 16



37,0

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

sq m


GRAPH 18


Source: Savills



• The first three months of the year were characterised by a high level of activity, which resulted in take-up of 115,300 sq m (+35.3% compared with Q1 15). Consequently, the first quarter of 2016 was stronger than any single quarter of last year.

• Furthermore, with requirements totalling more than 250,000 sq m in the market, we expect take-up for the year as a whole to reach significantly more than 400,000 sq m, which would surpass last year’s total. However, demand is being driven less by the large requirements previously typical of the Frankfurt market and more by the small and medium size segments.

• Despite the generally high supply of space in 2016, the average rent is expected to show moderate growth. The prime rent remains stable at €38.00 per sq m/month.

Frankfurt market in minutesTake-up in Q1 16 higher than in any quarter of 2015

Q1 2016



HamburgOffice completions of 170,000 sq m in 2016 is not sufficient to satisfy demand

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GRAPH 19

Take-up

City27%

City South19%

Bahrenfeld12%

Altona10%

Outer Alsterlage8%

other submarkets

24%

GRAPH 21


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GRAPH 22


Source: Savills



• In view of the high demand and relatively low supply, tenants in the Hamburg office market will have to adjust to further increases in rents in the medium term. The prime rent currently stands at €25.00 per sq m/month, representing an increase of 2% year on year.

• The completion volume of approx. 170,000 sq m for the current year is somewhat higher than in previous years but is not sufficient to completely satisfy demand. In the medium to long term, more new development projects are required. However, when seeking development sites, developers of commercial space are in strong competition with residential developers, who can normally pay higher prices for land.

• While there are a number of large requirements in the market this year, the scarce supply means that last year’s take-up total of 527,000 sq m is unlikely to be reached in 2016.

Hamburg market in minutesSurplus demand is driving rents higher

Q1 2016



CologneEhrenfeld submarket is in high demand | Occupier tend to prolonge contracts

68 86 69 58 57 44 66 69 78 53 91 61

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GRAPH 23

Take-up

City45%

Ehrenfeld / Braunsfeld

13%

Kalk / Mülheim11%

Porz / Airport9%

Ossendorf / Nippes

8%

other submarkets

14%

GRAPH 25


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sq m


GRAPH 26


Source: Savills



• The supply of space above 1,000 sq m in Cologne city centre is very limited. Faced with a lack of alternatives, many occupiers are prolonging their existing leases. Occupiers requiring more space often have only four options: higher rent, lesser quality of space, poorer location or dividing their space across several floors or locations.

• Developers completing (speculative) projects are benefiting from this supply shortage. This model has been particularly successful in the Ehrenfeld submarket, which is currently benefiting from the scarce supply in Cologne city centre. Ehrenfeld registered 20 small and large deals in the first quarter and accounted for almost 20% of take-up in the first three months of 2016. The submarket impresses with its sound infrastructural connections and is popular with media and advertising agencies owing to its vibrant urban quarters. The rents of €12 to €14 per sq m/month are moderate compared with the city centre.

Cologne market in minutesDevelopers are benefiting from the supply shortage

Q1 2016



MunichOccupier switch to Outskirts North and City West due to supply shortage in centre

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GRAPH 27

Take-up

Outskirts North17%

City West15%

City12%

Outskirts East12%

Outskirts West7%

other submarkets

37%

GRAPH 29


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GRAPH 30


Source: Savills



• Demand in the Munich office market continues to significantly exceed supply. The vacancy rate across the entire market currently stands at just 4.7%. In the city centre and indeed the entire area inside the main ring road (Mittlerer Ring), the vacancy rate is much lower at below 2%. In view of the supply shortage, take-up this year could be slightly lower than last year’s total.

• Tenants have now recognised the strained market situation and are already planning with longer lead times. In the short term, they will only find space of a similar quality to their existing offices at a higher rent or space at a similar rent in a poorer location.

• While the completion volume in 2016 will be the highest since 2010 at 223,400 sq m, this will be insufficient to satisfy demand. The scarcity of development sites raises the question in the medium term of how sufficient office space can be provided in future.

Munich market in minutesOccupiers are starting to adjust to the supply shortage

Market in Minutes | Germany Office Markets Q1 2016


Savills is present in Germany with around 200 employees with seven offices in the most important estate sites Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart. Today Savills provides expertise and market transparency to its clients in the following areas of activity:

Our services » Purchase and sale of single

assets and portfolios » Corporate Finance - Valuation » Leasing of office and retail

buildings » Leasing and sale of industrial

and warehouse properties » Landlord and Occupier Services

Savills Germany

HH

B

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D

C

www.savills.de

Savills is a leading global real estate service provider listed on the London Stock Exchange. The company, established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows and now has over 700 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East with more than 30,000 employees worldwide. Savills is present in Germany with around 200 employees with seven offices in the most important estate sites Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart.

This bulletin is for general informative purposes only. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The bulletin is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. © Savills April 2016

Savills GermanyPlease contact us for further information

Marcus MornhartOffice Agency Germany+49 (0) 69 273 000 [email protected]

Ken HoppeOffice Agency Hamburg+49 (0) 40 309 977 [email protected]

Christian LeskaOffice Agency Berlin+49 (0) 30 726 165 [email protected]

Simon LösekeOffice Agency Cologne+49 (0) 221 933 313 [email protected]

Jan-Niklas SchroersOffice Agency Düsseldorf+49 (0) 211 22 962 [email protected]

Nico JungnickelOffice Agency Munich+49 (0) 89 427 292 [email protected]

Benjamin RemyOffice Agency Frankfurt+49 (0) 69 273 000 [email protected]

Matthias PinkResearch+49 (0) 30 726 165 [email protected]

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market in minutes - germany office markets - q1 2016

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