No crisis in Hamburg’s office letting market – average rents rising

We noted take-up of around 106,000 sq m in Hamburg's office letting market in Q1 2023. As in the past ten years this exceeds the 100,000-square-metre mark, but falls 19 percent short of last year's figure (Q1 2022: 131,000 sq m).

No lettings of over 10,000 sq m in Q1
Office space from 1,000 sq m to under 3,000 sq m made the largest contribution to take-up, at 26 percent. 16 lettings, totalling 27,600 sq m took place in this category. With 25,100 sq m or 24 percent of the total take-up, the size category from 5,000 sq m to under 10,000 sq m made the second-strongest contribution. The highest single deal was the leasing of 6,800 sq m in the Tichelhaus development project in the Hafenrand submarket by Telefónica Germany. There were no deals of 10,000 sq m or more in the first three months. 

Education, social services, administration and lobbyists sector with the highest take-up 
Significantly boosted by two large deals for education and training institutions of over 5,000 sq m, the education, social services, administration and lobbyist sector made the largest contribution to take-up in Q1 2023 (12 deals; 21,400 sq m of office space).

Tobias Scharf, Head of Office Agency and Branch Manager in Hamburg, explains: "The strong start to the year expected at the end of 2022 failed to materialise in the first quarter because, contrary to expectations, several major searches have not yet been concluded. The reason for this lies, among other things, in increasingly complex leasing processes. In addition to the still-present economic uncertainties, decision-making is delayed in the context of new office work environments and sustainability and the related issues such as workplace strategy, change management and ESG compliance."

Take-up in 2023 will remain below the 10-year average
A catch-up effect is expected in the coming months due to the lack of major deals in Q1. Nevertheless, the economic uncertainties are increasingly reflected in Hamburg's office letting market. As a result, prospective tenants are increasingly reconsidering their leasing decisions. For this reason, we expect a significantly lower letting performance for 2023 as a whole, at around 450,000 sq m, than last year (562,000 sq m).

Focus on location and amenity quality
In the first quarter of 2023, companies continued to give high priority to a good location and a high quality of fit-out in order to be competitive in the labour market. Thus, 17 percent or 18,200 sq m of the total take-up was accounted for by development projects which were under construction or in planning, 84 percent of which are located in the central submarkets of the city centre, HafenCity and Hafenrand.

Prime rents at a peak, average rents rising 
The distribution of take-up underpins the observation that companies are increasingly focusing on central locations and modern office space, which, due to their scarcity, is not infrequently offered for top prices in excess of 30.00 euros/sq m per month. Thus, the price category above 30.00 euros/sq m per month accounted for around 15 percent of total take-up in Q1, compared with around 3 percent for the 10-year average (2013-2022).

As a result, the prime rent continues to maintain its high level of 33.00 euros/sq m per month. Compared to the previous year, this corresponds to an increase of 1.50 euros or around 5 percent. Due to the unabated high demand for modern office space in prime locations, C&W expects prime rents to continue to rise until the end of the year.

The weighted average rent of all deals concluded in the past twelve months reached a new record high. It now stands at 21.45 euros/sq m per month across all building classes. This is 3.10 euros and 17 percent above its level at the end of March 2022.

Construction volume at a high level
In Q1 2023, around 44,400 sq m of new and core refurbished office space was completed in Hamburg. The largest project was the Burstah. comprising the buildings Trident, Kastell and Kurant. with a total of around 20,000 sq m of office space. About half of the space was pre-let by completion.

A total of around 588,000 sq m of office space is currently under construction. This is 9 percent more than at the end of 2022, which is due to the start of construction of the Elbtower with over 75,000 sq m of office space. Of the space under construction, 69 percent has already been allocated to users.

Office vacancy increases slightly year-on-year
Compared to a year ago, the vacancy rate has increased by 0.6 percentage points to 4.6 percent at the end of March. Absolute vacancy  increased by 95,000 sq m to 700,000 sq m. Vacant existing space and space released by some companies for subletting could cause the vacancy rate in Hamburg to continue to rise moderately until the end of 2023.