In the 1st quarter of 2024, office take-up in Germany’s five most important office locations was on a par with the previous year at around 511,000 sq m, according to figures from international real estate consultancy firm Cushman & Wakefield (C&W). Subdued demand for space with increasing supply from vacancy and completions as well as rising rents continue to characterise market activity.
Christian Lanfer, Head of Office Agency Germany at C&W, comments: “On the user side, we continue to observe a high demand for top quality in conjunction with high completion figures. However, the number of construction starts is falling: speculative construction is scarcely feasible in the current restrictive financing environment and pre-letting targets are inching ever higher. For larger office occupants, there are now internal lead times of up to two years for leasing decisions. If development projects are then included, the total process duration can easily exceed six years.”
Helge Zahrnt, Head of Research & Insight Germany at C&W, adds: “The first quarter is usually the weakest in terms of take-up, and 2024 is proving to be no exception. Due to the current state of the economy and a less than optimistic forecast for the coming months, higher take-up is currently not to be expected. In addition, many occupiers are thinking about structural space reductions or are already implementing them: For the year as a whole, we expect a result similar to 2023.”
Take-up: Corridor of -25 and +25 percent compared to Q1 2023
- In the top-5 office markets, around 511,000 sq m of office space was let or assigned to owner-occupiers in Q1 2024. This is on a par with the prior-year quarter, but 6 percent below the previous quarter.
- As in recent quarters, market activity is below average: both the Q1 10-year average and the average of the past ten quarters were undershot by more than 20 percent in Q1 2024.
- Berlin and Munich, with almost 140,000 sq m each, are the market areas with the highest take-up. Berlin equalled the level of the previous year, while Munich achieved an increase of almost a quarter. The sharpest year-on-year decline, by 25 percent, was recorded in Hamburg.
- At around 630, the number of transactions in Q1 2024 is stable compared to the previous quarter and Q1 2023.
- In the first quarter of 2024, there were only five deals in the size class of 10,000 sq m or more, two each in Berlin and Munich, however the largest letting, of 38,000 sq m by the ECB, took place in Frank-furt and also marked the largest deal in the top-5 since Q2 2022. Smaller deals of less than 1,000 sq m, on the other hand, are performing much better – exhibiting an increase of 4 percent compared to the previous quarter.
- Around 62 percent of take-up in the 1st quarter was recorded in CBD and central locations, i.e. those locations that are particularly at the focus of users’ attention regarding the “flight-to-quality”. In the CBD alone, there was an increase from 19 to 33 percent compared to the previous quarter – three of the five major deals of 10,000 sq m or more are in this location category.
- In terms of occupier sector, industrial companies lead ahead of public administration. The ICT industry, which regularly topped the rankings until 2022, was only in fourth place in the quarter under review.
Rental prices: Prime rents with further upward momentum
- In the 1st quarter, prime rents rose in Munich (EUR +3.00 /sq m), Düsseldorf (EUR +2.00/sq m) and Frankfurt (EUR +0.50/sq m). On average in the top-5 markets, prime rent growth was 2.5 percent quar-ter-on-quarter and 6.2 percent year-on-year.
- When it comes to average rents, for which the lettings of the past twelve months are taken into ac-count, the picture is mixed. In some markets there is an increase (Frankfurt >EUR 2.00/sq m and Mu-nich >EUR 1.00/sq m), in others a decrease (Berlin and Düsseldorf by EUR 0.25/sq m each).
- The rent-free periods in central prime locations are 7.5 percent based on a 5-year lease across all top-5 markets.
Vacancy: More vacancy, especially for subletting space
- The vacancy rate for office space in the top-5 market areas stood at 5.68 million sq m at the end of Q1 2024. This corresponds to a vacancy rate of 7.2 percent and is one percentage point higher than twelve months ago.
- Among the top-5 markets, Hamburg continues to have the lowest rate at 4.8 percent, while Düsseldorf has the highest rate at 10.2 percent. Berlin has the absolute highest vacancy rate (1.57 million sq m), followed by Munich (1.3 million sq m).
- The supply of subletting space continued to increase in Q1, totalling 653,000 sq m, which is 35 percent higher than the figure of a year previously. The classical vacancy rate (excluding subletting space) has risen by 17 percent.
- In the coming quarters, C&W expects the vacancy rate to rise further – to around 8.0 percent by the end of 2024, due to the unlet space in the numerous completions as well as space reductions when many occupiers move.
Completions: Construction volume decreases
- In the first quarter, 331,000 sq m of office space was completed, 69 percent of which was let or assigned to owner-occupiers on completion. By far the largest volume of completions was in Berlin (206,000 sq m), followed by Munich (54,000 sq m).
- Around 1.73 million sq m of property currently under construction is for completion by the end of 2024 – which would be almost double the 5-year average (960,000 sq m). Currently, 41 percent of this space is still available.
- At the end of the 1st quarter, the construction volume was 3.3 million sq m – about half of which is still to be let. Compared to the previous quarter, construction volume fell by around 310,000 sq m, as fewer new construction projects are being launched in the current market environment.
