International real estate consultancy firm Cushman & Wakefield (C&W) noted take-up of 243,800 sq m in Berlin’s office leasing market in H1 2023. This is 35 percent below the previous year's level and the 5-year average. At 102,600 sq m, the result in Q2 was particularly low.
Large-scale deals extremely scarce
Take-up in H1 was weak in almost all size segments. Large-area deals were particularly affected. Only two leases for more than 10,000 sq m were signed. The date back to Q1 and total 32,000 sq m.
In the 5,000 sq m to less than 10,000 sq m size category, around 23,500 sq m of take-up was contributed via four deals. In the short and medium terms, C&W does not expect a significant increase in activity, as the number of large applications on the market is low.
Companies in the (renewable) energy sector with more take-up
At 45,800 sq m, industrial companies made the largest contribution to take-up. The (renewable) energy sector was particularly well represented. Both established companies and start-ups in this sector are benefiting from the accelerating energy transition and the associated investments by private and public actors.
On the other hand, there has been a decline in revenues from enterprises in the ICT (information and communications technology) sector and public administration. The public sector has recently postponed several leasing decisions for large spaces. In view of the rising interest rates on government debt, potential savings in office space will increasingly become a focus of policymakers’ attention.
Heiko Himme, Head of Cushman & Wakefield Berlin, classifies developments in the market as follows: "The effects of home office and remote work have long been underestimated. Companies’ adaption to the 'new normal' is a continuous process that takes time. The uncertainty about the right workplace strategy is leading to the transition being drawn out and will continue to have a structural impact on the market for many years to come."
Prime rent continues to rise nevertheless
The achievable prime rent rose in Q2 by EUR 0.50 and is now EUR 44.50/sq m per month. Compared to a year previously, this is an increase of EUR 2.50 or 6 percent. A further slight increase is expected by the end of the year, driven by development projects and high-quality existing buildings in prime locations.
The area-weighted average rent has recently risen more slowly than the prime rent and now stands at EUR 28.55/sq m per month, which corresponds to an increase of EUR 0.50 compared to a year earlier.
C&W expects average rents to stagnate to the end of the year. Due to the increased supply on the market, price pressure is slowly emerging, which is reflected in falling rents, especially in poorer to medium locations and qualities.
Vacancy rate will rise to over 6 percent in 2024
At the end of H1 2023, the vacancy rate, including subletting space on offer, was 5.4 percent. Around 1.1 million sq m is available for immediate occupancy. Compared a year previously, this is an increase of 239,500 sq m or 28 percent.
At the beginning of 2019, the vacancy rate was only 1.3 percent, at 241,100 sq m. Due to the large development project pipeline and the trend towards space reduction, the vacancy rate and the volume of space offered for subletting will continue to rise. This effect is exacerbated by the low take-up. By next year at the latest, a vacancy rate of over 6 percent is expected, but this will not yet have reached the peak of the current cycle.
Construction volume begins to decline
To mid-year, completions of new construction and core refurbishment space amounted to 257,700 sq m, which is 52 percent above the 5-year average. On completion, 121,900 sq m or 47 percent of the space was still without occupiers. By the end of the year, a total of approximately 740,000 sq m of completions is expected.
The total volume of space under construction fell from 1.76 million sq m to 1.68 million sq m in the second quarter. This development will become a trend, as many construction starts will be delayed or fail to materialise at all.
