International real estate consultancy firm Cushman & Wakefield has recorded take-up of around 147,000 sq m in Berlin's office lettings market in Q1 2023. This is 7 percent below the previous year's level and 22 percent below the 5-year average.
Take-up lower in all size categories
While the decline in take-up in the previous year was due to a reduced number of large deals, take-up at the beginning of 2023 was below average in all size segments compared to the 5-year average. There were also only two large deals involving over 10,000 sq m. These comprised the letting of 19,200 sq m to the Boston Consulting Group in the AP15 development project in MediaSpree and a letting of 12,800 sq m to Jobcenter Berlin Marzahn-Hellersdorf in a development project in Märkische Allee.
Prime rent continues to rise
The achievable prime rent rose by EUR 0.50 in the first quarter compared to the previous quarter and now amounts to EUR 44.00/sq m per month. Compared to a year previously, this was an increase of EUR 3.00 or 7 percent. Further slight growth is expected to the end of the year, driven by development projects and high-quality existing buildings in prime locations. C&W notes that occupiers are prepared to pay a correspondingly high rent for a combination of good quality, the opportunity to realise “new work” environments and compliance with ESG criteria, albeit with reduced office area.
The area-weighted average rent is now EUR 27.90 /sq m per month, 15 cents higher than a year ago. C&W expects average rents in the capital to remain stable or rise slightly in 2023.
Industrial sector leases more, tech companies significantly less
With 25,900 sq m, industrial companies accounted for the largest take-up. This sector already contributed a larger proportion of overall take-up last year. The growth sectors of (renewable) energy, chip technology and biotechnology were again strongly represented.
The ICT sector (ICT: information and communication technology) only landed in fourth place with 19,200 sq m, behind consulting firms and public administration (22,100 sq m each). The relatively low level of tech sector leasing activity, especially regarding large spaces, is an important factor in the overall weak take-up result. This is because these companies were an important driver of the rising demand for office space in Berlin in recent years. The current market environment with higher financing interest rates and the associated focus on profitability instead of growth is having a particularly strong impact on the leasing decisions of these companies.
More vacancies and more offers for subletting
At the end of Q1 2023, the vacancy rate including available subletting space is 5.2 percent. Accordingly, 1.06 million sq m is available for immediate occupancy. Compared a year previously, this is an increase of 273,200 sq m or 35 percent. At the beginning of 2019, the vacancy rate was still only 1.3 percent and absolute vacancy 241,100 sq m.
The amount of space available for immediate subletting has also increased further to around 109,000 sq m, which is around 60,000 sq m more than a year ago. In addition, it is known that further pre-let spaces in development projects are to be offered for subletting directly after completion and will add to the vacancy in the coming quarters.
Heiko Himme, Head of Berlin at C&W, classifies the increase in supply as follows: "The Berlin office letting market has left the extreme shortage of space behind it. The market is largely balanced again and offers opportunities for prospective tenants. A further significant increase in vacancy must be expected, at least for this year and next. This is due to the upcoming record completion volume. In addition, vacancy will increase due to relocations to completed development projects and the vacating of space in older properties."
Record completion volume in 2023 - normalisation from 2026 onwards
Completions of new-build and core refurbishment space reached 152,900 sq m in Q1, 37 percent above the 5-year average. 102,300 sq m, or two thirds of the space, was still without an occupier at the time of completion. This is not limited to properties in peripheral locations such as Schönefeld or Adlershof, but also includes central locations such as Kreuzberg.
A further 738,000 sq m is for completion across the market area by the end of the year, with a pre-letting rate significantly higher at 74 percent. 2023 is therefore on track to be a record completion year with around 890,000 sq m in total.
The total amount of space under construction is still very high at a good 1.76 million sq m. However, with the record level of completions due this year, the volume will decrease, as the number of speculative construction starts decreases at the same time.
C&W therefore expects a significant decline in the volume of completions by 2026. The year 2025 will probably be a transitional year in which the high level will still be supported by delayed completions of projects now already under construction and pre-let.
