Market in Minutes Top 6 Office Markets Germany

Lower take-up, but stable

Text: Dr. Martin Kern

The COVID-19 pandemic continues to shape activity in the top six office markets in Germany. Compared with previous quarters, however, there are signs that occupiers are again looking with more confidence into the future. Although uncertainty remains with regard to remote working. Many desk workers can envisage themselves working remotely a few days per week but also appreciate their office to be a crucial pillar in their working environment. Take-up in the top six office markets fell modestly year on year by 3% to 653,500 sq m. However, the first quarter of 2020 was still largely characterised by the pre-pandemic reality. A comparable quarter, at least in terms of measures to contain the pandemic, was the second quarter of 2020. Compared to this quarter, office take-up in the first quarter of 2021 was approximately 25% higher.

The public sector continues to provide stability in the office market, accounting for a total of approximately 136,000 sq m of office lettings in the first quarter of 2021. The public sector was particularly active in Cologne, accounting for approximately 37% overall take-up. But, also in Frankfurt am Main and Hamburg, it contributed to approximately 30% of office lettings. Overall, it is evident that, in cities where the public sector accounted for an above-average share of lettings, quarterly take-up also increased year on year. Cologne registered the sharpest increase of 127%.Rents remained largely stable in the top six office markets. Only in Berlin did the prime and median rents show a margin decrease. Across all top six markets, the prime rent fell by 0.8% compared with the previous quarter to €35.40 per sq m. The median rent, meanwhile, rose by 1.9% to €17.71 per sq m.

The average vacancy rate across the top six office markets currently stands at 3.8%. This represents an increase of 30 basis points compared to the previous quarter and 63 basis points year on year. Munich witnessed the strongest increase in the vacancy rate, amounting to 60 basis points. Cologne is the only top six city where the vacancy rate fell. One reason for the increase in vacancy rates is the high volume of project developments in the last year. Some 1.75 million sq m of office space was completed in 2020, which is approximately 75% above the ten-year average. This illustrates that the effects of the COVID-19 pandemic were only negligible in the construction sector while demand in the office market has been relatively low in recent quarters. Especially due to the contact restrictions and the uncertain economic environment. That will also be the case this year. Take-up in 2021 is likely to be below the average between 2015 and 2019 (3.6 million sq m). In contrast, the completion volume of office space will be significantly above average at 1.6 million sq m (average from 2015-2019: 0.9 million sq m), of which approximately 65% is already pre-let. This does not mean, however, that the vacancy rate in new-build projects will rise. New-build developments with modern fit-out remain in demand. Particularly in view of the current uncertainty in terms of future office space requirements, occupiers are focusing strongly on quality and flexibility.

It is currently noticeable that take-up is stabilising at the present level. In the remainder of the year, however, there may be a catching-up process. Owing to the uncertain economic situation, many companies have paused their leasing decisions for the time being. With greater clarity as the pandemic progresses, companies will become more active once again, generating more demand in the office market. However, since companies require a lead time for their plans, no noticeable increase in letting activity is expected before the second half of 2021.

*The median rent is the average rent across all letting transactions. Hence, 50% of all lettings lie above the median rent and 50% lie below it. However, the size of the space in each letting is not factored into the weighting when calculating the median rent.

Further information on the top 6 office markets as well as the all charts and raw data for download can be found in the PDF.