International real estate consultancy firm Cushman & Wakefield (C&W) recorded take-up of 430,700 sq m in the Berlin office letting market in the first three quarters of 2023. This corresponds to a decrease of 28 percent compared to the same period last year. Take-up in Q3 amounted to 176,600 sq m.
Large-scale lettings remain rare
Take-up in the first nine months of the year was weak in almost all size segments. Major deals were particularly affected. Only two leases for 10,000 sq m or more were signed. In addition, in Q3 a Federal Criminal Police Office expansion project of 25,000 sq m, which the police authority will move into itself, was registered.
While lettings of less than 1,000 sq m fell by 21 percent compared to the same period last year, around 65,600 sq m took place in the size category of between 5,000 sq m and 10,000 sq m via ten lettings. As a result, this size class maintained the level of a year previously.
Lettings to the public sector, which leased a total of 70,100 sq m despite a general reduction in floor space, were important here. These included, for example, the Federal Office for the Safety of Nuclear Waste Management and the Pankow District Office, each of which signed leases for between 5,000 sq m and 10,000 sq m. Nevertheless, the public sector take-up remains below that of previous years.
Although some information and communication technology companies have recently leased office space, the take-up of 62,100 sq m to the end of September is not even half the level of a year ago. Industrial companies, on the other hand, actively rented, contribution 58,700 sq m of take-up, which is slightly above the level of the same period in pre-crisis year 2019.
In the short and medium terms, C&W does not expect overall market activity to increase, as the number of large searches for space which are active in the market is low.
Pierre Nolte, Head of Office Agency Berlin at C&W, classifies the situation as follows: “The balance of power has clearly shifted in favour of tenants. The owners are adapting to the new reality. Large-scale users in particular are able to assert their interests in terms of incentives, shorter lease terms and flexible periods of use as far as possible during contract negotiations. At the same time, we are observing that development projects totalling almost 200,000 sq m of office space have been put on hold for the time being. Nevertheless, we expect more than 800,000 sq m of completions next year, as many projects commenced in the old market environment.”
Vacancy rate rises by almost half to 6.10 percent within a single year
At the beginning of 2019, the vacancy rate was at an all-time low of 1.30 percent. At the end of September 2023, on the other hand, the vacancy rate, including subletting space on offer, was 6.10 percent, which corresponds to an area of around 1.25 million sq m. Compared to a year ago, vacancy increased by 356,200 sq m or 40 percent.
Due to the large development project pipeline and the trend towards space reduction on the occupier side, the vacancy rate will continue to rise. This effect is amplified by the low take-up, which is why a vacancy rate of around 8 percent by the end of 2024 is realistic.
Completions remain high
In the first nine months of the year completions of new construction and core renovation totalled 361,000 sq m, which is 26 percent above the 5-year average. At the time of completion, 151,500 sq m or 42 percent of this space was still without occupiers. By the end of the year, a total of approximately 684,400 sq m of completions is expected, and this will even be exceeded next year. After that, the level will decrease significantly, as many planned projects are currently being reconsidered.
Prime rent static compared to the previous quarter
The achievable prime rent remained at the same level as in Q2 in Q3 2023 at EUR 44.50/sq m per month. Compared to a year previously, this is an increase of EUR 1.50 or 3.00 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 is now EUR 29.05/sq m per month, which corresponds to an increase of 60 cents compared to a year ago. Due to the increased supply in the market, there is now price pressure on the asking rents of basic and medium quality properties. However, this is not yet reflected in the average rent, as there are hardly any lettings being concluded in this segment at the moment.
