International real estate consultancy firm Cushman & Wakefield has registered take-up of 778,300 sq m in Berlin's office letting market in 2022. This result is 15 percent below the previous year's level and 14 percent below the 5-year average.
Lack of large deals depresses take-up
At 177,000 sq m, the 4th quarter was atypically weak for Berlin and 36 percent below the 5-year average. The reason for this was the lack of large lettings in excess of 10,000 sq m. In the fourth quarter there were no lettings whatsoever in this size category. For the year as a whole, there were only six lettings of this size, compared to 19 in 2021. The largest deal in Q4 was the letting of 9,800 sq m in the Wäschefabrik in Wedding by the Robert Koch Institute.
Mixed picture in rental price development
The achievable prime rent rose again in the 4th quarter compared to the end of September by EUR 0.50 to EUR 43.50/sq m per month. Compared to a year ago, this is an increase of EUR 3.50 or 9 percent. C&W expects prime rents to remain static in the short term, but anticipates slight growth by the end of 2023. This will be driven by development projects and high-quality existing buildings in prime locations. Here, demand is so high that some of the construction cost increases can be passed on to tenants.
The area-weighted average rent at the end of 2022 was EUR 27.55/sq m per month, 10 cents lower than a year earlier. However, C&W does not see this as a trend reversal and expects a slight increase again in the coming quarters.
ICT sector and online platforms source of the most take-up, but industry catching up strongly
Companies from the information and communication technology segment and online platforms again dominated with take-up of 144,600 sq m. However, this is a decline of 31 percent compared to the previous year. The largest deal of the year was the pre-letting of 22,500 sq m in the QH Track development by the Volkswagen software subsidiary Cariad SE.
Industrial and consultancy companies exhibited conspicuously strong growth in take-up. With 82,200 sq m, industrial companies increased their take-up by 48 percent compared to 2021. This growth was based on lettings in future-oriented sectors such as renewable energies, sustainable mobility and pharmaceuticals/biotech (R&D).
Take-up by consultancy firms rose by 111 percent to 48,000 sq m. The driver of this development was the high demand for space from IT consultants.
Vacancy in the capital is growing significantly, subletting is on the rise
At the end of 2022, the vacancy rate including sublet space on offer was 4.7 percent. This means that 946,900 sq m is currently available for immediate occupancy. This corresponds to an increase of 245,600 sq m or 35 percent compared to the end of 2021. Since the low point at the beginning of 2019, the vacancy rate has almost quadrupled and is now at a similar level to those of Hamburg and Munich.
Looking ahead, C&W expects a further increase in vacancy. The reasons are the extensive property development pipeline and relocations to completed development projects, which are associated with the vacating of space in older stock.
In addition, there is an increasing supply of subletting space: 88,800 sq m is offered for immediate occupancy, 10,400 sq m more than in the previous quarter and 48,900 sq m more than a year ago.
Heiko Himme, Head of Berlin at Cushman & Wakefield, explains: "The strong momentum with which subletting space is coming onto the market in Berlin is also related to the tech companies’ high rates of remote working - these are proving more sustainable than initially assumed. At the same time, higher interest rates and the economic slowdown have shifted companies' priorities from growth to profitability. Unused areas of leased space are coming under scrutiny as a result and are increasingly being offered for subletting."
Construction delays only hindrance to new record level of completions
At 509,100 sq m, completions of new and core-refurbishment space did not quite match the record set the previous year (563,100 sq m). Construction delays postponed the completion of some major projects until 2023, including the 84,300 sq m Cule project.
Nevertheless, the result was 51 percent above the 5-year average. 122,700 sq m or 24 percent of the space was still without an occupier at the time of the respective completions.
C&W expects a record year for completions in 2023. Currently, 930,200 sq m is planned. A total of 1.67 million sq m in development projects is under construction, of which 52 percent is let or intended for owner-occupation.
Due to rising financing and construction costs as well as the growing supply of space, C&W expects property developers to act more cautiously and the number of speculative construction starts to decline in 2023.
