Hamburg office market: Office take-up at a ten-year low, investment market still dynamic

In the first nine months of the current year, international real estate consulting firm Cushman & Wakefield registered take-up of around 249,000 sqm in the Hamburg office market. In direct comparison to the equivalent figure for 2019, with almost 435,000 sqm of take-up, this year's result is around 186,000 sqm (43 percent) lower. The last time take-up fell below the 300,000 sqm mark was in 2009 (297,000 sqm). At some 60,000 sqm, the third quarter was the weakest of the current year. "As a result of the economic uncertainties and the medium and long-term effects of the pandemic on space requirements, some of which are still unknown, office users are predominantly adopting a wait-and-see attitude," commented Tobias Scharf, Head of Office Agency at Cushman & Wakefield in Hamburg.

Tobias Scharf also expects the weakness in office letting activity to continue until the end of the year. However, the revision of the company's own workplace environment and the associated adaptation to new utilization concepts could already generate rising demand for new office space next year. The effects of a more flexible workplace model with the expansion of remote working from home are countered by the promotion of constructive cooperation and the observance of distancing rules. "In Hamburg, we see the future role of offices increasingly being to foster employee collaboration. In terms of space, this means a reduction of permanently furnished workplaces in favour of collaborative spaces," Tobias Scharf continued. A possible increase in the number of requests for space is currently offset by a very low vacancy rate. "Over the past weeks and months, however, we have observed an increase in the amount of space on offer via subletting, although surveys of landlords show that Covid-19 is behind only about half of space being sublet," analyses Helge Zahrnt, Head of Research & Insight Germany at Cushman & Wakefield. "The increase in space being sublet provides a now source of supply for users seeking space in a tight market.”

2020 still without any major letting of over 10,000 sqm
The number of leases signed has fallen less sharply than take-up by area. Compared with the Q1-Q3 average for the past five years, the first three quarters of this year saw 367 new leases signed, only 10 % fewer than the average for previous years (408). The disparity between the number of deals (minus 10 percent) and take-up (minus 40 percent) is due to the large number of applications for space under 1,000 sqm (minus five percent compared to the first-nine-month average of the past five years), which account for the majority of deals in terms of number. In contrast, the current number of deals for more than 3,000 sqm is almost 50 percent below the first-nine-month average of the last five years.

As in the first half of the year, the third quarter saw an absence of major leases for over 10,000 sqm in contrast to five in the equivalent period last year, which to a total of over 140,000 sqm being let in that period. Letting processes for large areas that were started before the Covid-19 crisis are not being concluded due to the wait-and-see attitude of prospective tenants. "These transactions are not off the table, but the uncertainties resulting from the pandemic are leading to the fact that large-scale leases in particular are being postponed until the current situation can be better assessed and there is certainty regarding the requirement profile for office space," explains Tobias Scharf. "In addition, many users are extending their existing rental contracts. 

In the first three quarters of the year, five leases were concluded for in the 5,000 sqm to 10,000 sqm category, totalling around 30,000 sqm. For the current year, the largest deal to date in the Hamburg office market was for space in Hamburg Rahlstedt. In the emerging Victoria Park, Sund Holding will move into about 6,400 sqm of office space for its own use. The second-largest deal remains the leasing of around 6,100 sqm in the Oval Office by Hansainvest in City North in the second quarter.

Industrial sector source of strongest demand
Over the first three quarters, companies from the industrial sector have contributed the most to take-up, with 17 leases signed for over 30,000 sqm. While the ICT sector was still the top sector in the equivalent period in 2019 with 33 leases and a total of over 92,000 sqm, this year only around 19,000 sqm has been registered via 32 leases so far. This puts the ICT sector in only third place behind the education and social services sector, with take-up of 22,000 sqm via 19 leases.

Prime rent stable at € 30.00 per sqm per month
Since increasing to € 30.00 per sqm per month at the beginning of 2020, prime rent has remained static. Year-on-year it has risen by € 2.25 or eight percent. Even in the crisis, the prime rent did not fall below the level reached at the turn of the year; on the contrary, the highest value ever registered on the Hamburg market, € 30, proved to be sustainable. "The stability of the prime rents on the Hamburg office market testifies to an overall conservative rental price trend that can be achieved on a sustained basis," Tobias Scharf commented. "It also confirms the ongoing demand for modern space in Hamburg's prime locations". 

Similar to the prime rent, there is little change in the weighted average rent. The weighted average rent of the last twelve months across all building classes in Hamburg was € 17.10 per sqm per month. Compared with the same period last year, it has fallen from € 17.35 per sqm per month by 1.5 percent.

Construction activity continues at a high level, demand for modern space remains stable
To the end of the third quarter of 2020, 81,000 sqm of modern office space had been completed in Hamburg. Further completions of 75,000 sqm is expected by the end of the year, bringing the 2020 total added to Hamburg’s office stock to some 155,000 sqm of new office space, notwithstanding further postponements.

A total of a further 557,000 sqm is under construction with completion scheduled by 2025. Almost 55 percent of this space has already been let. This year, only two percent of the expected completion volume will be available in the market, which corresponds to a total of around 1,500 sqm of modern office space. Of the space that is to be ready for occupancy in 2021 and 2022, 58 percent has already been let. 

Of development projects already under construction the largest area is in the City submarket (140,000 sqm), followed by City Süd (99,000 sqm) and Hafencity (87,000 sqm). In the City submarket, the "Deutschlandhaus" with almost 30,000 sqm of office space is to be completed by 2023. In the Überseequartier Süd submarket, "Luv & Lee", "The Yard" and "Skysegel" totalling almost 50,000 sqm are expected to be completed by 2024. In City Süd, the Olympus Campus of approximately 47,000 sqm is under construction and is to be ready for occupancy this year. 

Investment activity in the Hamburg office property market remains dynamic
"The Hamburg office investment market remained extremely robust in the third quarter," reports Marc Rohrer, Head of Capital Markets and Head of Cushman & Wakefield in Hamburg. Of the approximately € 1.6 billion newly invested in real estate in Hamburg in the last three months, more than half, at just under € 1 billion, was in office properties or office development projects. This puts the office investment volume in the first nine months of the year at a good € 2 billion. Compared to the same period last year, office investment volume has thus increased by almost ten percent. "As a result of the "reopening" after the lockdown, transaction activity in Hamburg picked up significantly," assesses Marc Rohrer. "The focus was primarily on core properties in good and very good locations". The Zurich Group, for example, acquired the core property "Neuer Dovenhof" in central Hamburg. The largest office transaction in the third quarter was the sale of the Gruner+Jahr publishing house to a consortium led by Tishman Speyer for around € 300 million. 
The prime yield for office properties remained static at 2.80 percent in the third quarter. "We expect competition for attractive properties and the closing of recently initiated sales to remain intense in the fourth quarter. The pressure on yields in the Core and Core+ segment is currently continuing and a further compression of prime yields is very likely in the coming months," concludes Marc Rohrer.