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B-Cities on the rise

Verena Bauer • 22/09/2022
B-citites on the rise B-cities on the rise

Innovative, solid talent pool and low rents – are the B-cities displacing the Top-7? A short interview with Nicolas Heisig, Partner and Head of Office Agency National.

Diversity is ever more important. Including in the German office real estate market. Whereas in other countries everything is concentrated around one major city, here the focus is on several cities. And not just the traditional top-5 or top-7, but also cities such as Mannheim, Heidelberg, Hanover, Mainz, Leipzig and Nuremberg. And it is precisely these cities that have experienced a major upswing in recent years. The demand for prime space as well as the transaction volumes are constantly increasing further and, in addition to the lion's share comprising domestic investors, ever more international investors are also showing interest in these "B locations". Small and medium-sized properties in particular are also popular here.
What are the reasons for this trend? Has the pandemic with its associated trends towards suburban living and the like intensified this? What do the B-cities offer that the top locations do not? Which areas are in demand? Is there suitable space availability at all? And what are THE "future locations" in the B-cities that neither companies nor investors should miss out on in the coming years? Nicolas Heisig, Head of Office Agency National with a ten-strong team that advises occupiers and owners of properties outside the top-5 markets, provides the answers.

How has the demand for space in the B-cities developed in recent years - also in comparison to the German top-5 locations? 

Demand for commercial space, especially office space, has risen steadily in recent years. There have only been outliers in terms of take-up when large-scale lettings have taken place. Even during the pandemic, the B cities remained much more stable than the top cities. Here take-up and demand remained largely at the same level and they were less susceptible than the A-cities. The pandemic itself, however, only partially boosted demand. The tendency for companies to consider relocating to B-locations had already begun to manifest itself beforehand - because where rents are somewhat cheaper, moving into higher-quality space becomes more affordable.

B-cities on the rise B-citites on the rise
B-cities on the rise B-citites on the rise

Speaking of space - what kind of spaces are currently in demand in the B-cities and will continue to be so in the future?

New-build and refurbished spaces - preferably with ESG certification - in prime locations and with good infrastructure are particularly popular. In the buildings and spaces themselves, the focus is on sustainability, flexibility and fit-out. Above all, the office should provide sufficient suitable space for communal areas, collaborative work and spontaneous brainstorming. Service offerings in the building, such as a cleaning service, a café or possibly also childcare, are also becoming increasingly important for occupiers. In terms of location and infrastructure, anything that ensures a good work-life balance scores points. Is accessibility fast, uncomplicated and, above all, sustainable? In addition, there should be sufficient leisure amenities such as fitness studios and restaurants nearby

And what about availability? Is there enough of the type of space that is sought after in the B-cities?

Particularly in the B cities, the space potential is often even greater than in the top-7. There is a lot of activity in terms of new construction in good locations. Above all, neighbourhood developments are also increasingly popular. Behind Mannheim's main railway station, for example, THE new Mannheim business address has been under construction since 2017; the Glücksteinquartier along Glücksteinallee. Comprising eight construction sites directly on the Südtangente with approx. 185,000 sq m of commercial and 91,000 sq m of residential space, the city of Mannheim is showing how a completely new city district can be designed in a sustainable and modern way for office users and private households. In Nuremberg, the Lichtenreuth project is underway between the city centre and the trade fair grounds to develop a new city district - with a mix of living and working incorporating green spaces. The construction of the new Technical University in the south of the district will make the location particularly promising for the future. 

Nevertheless, supply problems and bottlenecks are currently making lettings more difficult and some construction projects are being temporarily put on hold or will only commence when the pre-letting rate has reached an appropriate level. 

B-cities on the rise B-citites on the rise
B-Cities on the rise B-Cities on the rise

Is there a current “inside tip” among the B-cities?

You can hardly speak of inside tips any more, most B-cities have already become unheralded champions with office markets seeing strong demand and offering enormous growth potential. The trade fair city of Hanover, for example, is strong in automotive and mechanical engineering and one of the most important insurance locations in Germany and has one of the densest networks of charging stations for e-cars. Mannheim and Heidelberg are centres of the economically-strong and extremely innovative Rhine-Neckar region with a significantly higher proportion of skilled workers than the national average. 
In Mainz, a location for biotechnologies is developing - driven among other things by the growth of BioNTech in the city - and is now also becoming increasingly interesting for the biotechnology sector’s suppliers and partner companies. And the Leipzig/Dresden region combines being one of the fastest-growing business locations in the country with offering a high quality of life. 

As different and diverse as they are, the successful B-cities share particular attributes: stable markets, good and renowned universities and thus also - and this is certainly the most important factor in the future viability of a location - a promising talent pool for the companies based there. In addition, companies here pay only a fraction of the rents they would in Frankfurt, Hamburg or Berlin, but are still within their catchment areas. This also applies to the people who live there. They pay less for housing, but can still quickly be in the big city - the optimum prerequisite for the talent pool to remain stable in the long term, and even grow.

How does the Office Agency National Team support potential occupiers in seeking office space? Why does it make sense for companies to rely on experts on the respective markets?  

It makes particular sense to have experts for the specific markets support you in your office search. We know the individual locations and what is happening on the ground well. We know which development projects are planned and which locations have the most development potential in the medium-to-long term, i.e. where new commercial locations may be created, where new city districts or “quarters” are being developed, where which industry focal points are located and which companies still plan to settle in the vicinity.

Once the space has been found, we support the lease negotiations and can make recommendations on market rates and customary practice. Many of the landlords are known to us personally via the networks and business relationships we have built up over the years. In addition, we regularly and closely exchange information with our investment team and exploit possible synergies - for example, when it comes to planned development projects.

We can also provide support, with the help of our colleagues in the respective areas, when it comes to developing a workplace concept, an occupancy plan or interior design to match the occupier’s brand. Our diversity is our strength here.

kontakt

Nicolas Heisig
Nicolas Heisig

Partner • 60313 Frankfurt am Main

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