In Q3 2023, office take-up in Germany’s five most important office locations was 30 percent below last year’s equivalent figure, reports international real estate consultancy firm Cushman & Wakefield (C&W). The situation will not change significantly this year, according to the forecast. One of the reasons for this is the low number of large-scale lettings, while smaller lettings are stable-to-increasing. The supply of subletting space has doubled compared to the same time last year because companies are systematically downsizing their space.
Christian Lanfer, Head of Office Agency Germany at C&W, commented: “In the past summer quarter, occupier demand for office space remained subdued. In the current market situation with economic weakness, changed workplace structures and the growing importance of ESG, landlords are facing major challenges. Repositioning or repurposing of many properties is the order of the day.”
Take-up:
Take-up down in all Top-5 markets - but increase in smaller transactions
- In the German Top-5 office markets, around 546,000 sq m of office space was let or assigned to owner-occupiers in Q3 2023, making it the quarter with the highest take-up of the current year so far.
- In the first three quarters of 2023, take-up amounted to 1.54 million sq m (-30 percent compared to the same period last year).
- For 2023, C&W expects a full-year result of just over 2 million sq m. Compared to the first three quarters last year, all the Top-5 markets recorded a decline in take-up. Frankfurt faced the smallest decline, of 7 percent, Munich the largest, at 47 percent. Berlin (430,000 sq m) and Hamburg (327,000 sq m) have the highest take-up in the current year.
- At 700, the number of deals in Q3 2023 was significantly higher than in the previous quarter (630) and is only 14 percent below last year's equivalent figure. This is due to the fact that numerous smaller deals were concluded. In Q3 2023, there were only twelve deals in the size category of 5,000 sq m and more. Although this is three more than in the previous quarter, it is still far less than the average since the beginning of 2020.
- The less than 1,000 sq m category, on the other hand, has continued to stabilise. In Q3, there were even more deals than the average since the beginning of 2020.
- Four deals of 10,000 sq m and more were registered in Q3, including one in each of the Top-5 markets, with the exception of Munich.
- Around 60 percent of take-up was recorded in CBD and city centre locations. Berlin and Düsseldorf, have the highest proportions of space in locations that are particularly favoured by occupiers in the flight-to-quality.
Vacancy:
5 million square metre mark exceeded
- Office vacancy in the Top-5 markets stood at 5.15 million sq m at the end of Q3 of 2023. This corresponds to a vacancy rate of 6.6 percent and is 1.2 percentage points higher than twelve months ago.
- Among the Top-5 markets, Hamburg continues to exhibit the lowest rate at 4.6 percent and Düsseldorf the highest at 9.7 percent. The highest amount of vacant space in absolute terms is in Berlin (1.25 million sq m), followed by Munich (1.2 million sq m).
- A further increase in vacancy is expected for the coming quarters. The reasons for this are the unlet spaces in the completions and the mostly smaller spaces in new lettings compared to companies’ respective previous locations.
- Subletting has risen further to just under 600,000 sq m. This corresponds to almost a doubling compared to the same quarter of the previous year.
Completions:
Completion volumes increasing once more
- In Q3, 246,000 sq m of office space was completed, bringing the cumulative total for the first nine months of 2023 to 987,000 sq m. 60 percent of this was already let or assigned to owner-occupiers at the time of completion.
- The highest levels of completions in the current year are in Munich and Berlin, each with around 360,000 sq m.
- In 2023 as a whole, around 1.6 million sq m of office space is expected to be completed - this would be significantly above the 5-year average of around 960,000 sq m (+ 63 percent). For 2024, 1.8 million sq m is currently expected, half of which is still available.
- The construction volume at the end of Q3 is 4.1 million sq m - of which around half is still available. Here, too, the largest proportions are in Berlin (1.7 million sq m) and Munich (818,000 sq m).
Rents:
Uneven picture regarding rental price development
- In the quarter under review, prime rents remained stable with the exception of Düsseldorf - where they rose by EUR 2.00/sq m per month. The prime rent index for the Top-5 markets stood at 162.7 points (2010=100) at the end of Q3 of 2023. This represents an increase of almost 8 percent in the 12-month period. A further increase is expected to the end of the year.
- Average rents are down in three of the five markets compared to the end of Q2. Here, the transactions of the respective preceding twelve months are taken into account in each case.
- Rent-free periods in prime city centre locations are at 7.2 percent, based on a five-year lease across all Top-5 markets.
