In 2023 as a whole, office take-up in Germany's five most important office locations was 25 percent below the previous year’s figures. The lower take-up was due to significantly fewer large-scale lettings and companies leasing less space. In addition, after years of very high construction volumes, numerous completions are now coming onto the market while prime rents continue to rise. The latter is due to a mixture of high construction costs, high demand for top quality and an increased willingness to pay for smaller areas.
Christian Lanfer, Head of Office Agency Germany, comments: “We recommend that companies take a close look at their own culture and strategy before making a real estate decision. This is where the requirements regarding ways of working and the attributes required of the office stem from. For many companies, this is uncharted territory, and it is important to understand that there are no one-size-fits-all solutions. Once such processes have been implemented more frequently, there will also be more activity in the office leasing market.”
Take-up: Decline in take-up in all top-5 markets of between -3 and -39 percent
- In the top-5 office markets, around 542,000 sq m of office space was let or assigned to owner-occupiers in Q4 2023. This is on a par with the previous quarter and marks the 5th consecutive quarter of weak take-up at around half a million sq m.
- For 2023 as a whole, take-up totalled 2.08 million sq m (-25 percent compared to the previous year). For 2024, we expect a full-year result of around 2.3 million sq m.
- Compared to the previous year (2022), all top-5 markets recorded a decline in take-up. Frankfurt exhibited the smallest decline at -3 percent, Munich the most marked at -39 percent. The highest take-up results in 2023 were recorded in Berlin (544,000 sq m) and Munich (470,000 sq m).
- At around 630, the number of deals in Q4 2023 is again slightly lower than in the previous quarter (700). For the year as a whole, there were 2,600 deals, which is 11 percent below the 5-year average.
- In 2023 as a whole, there were only twelve deals of 10,000 sq m or more, with the largest number of these, four, in Hamburg. Compared to recent years, leasing activity in this size class has slumped (2021: 41 units; 2022: 25 units), with a corresponding impact on office take-up: In 2022, deals in this size class still contributed almost 500,000 sq m but in 2023 just under 200,000 sq m.
- A comparison of the size classes shows that the smaller the size class, the smaller the decline in rental activity. For example, the decline in deals of less than 1,000 sq m compared to the previous year is 12 percent, while it is 28 percent for areas of 5,000 sq m or more.
- Around 58 percent of take-up is recorded in CBD and central locations, i.e. those locations that are particularly in occupiers’ sights in the “flight-to-quality”.
Rental prices: Prime rents with further upward momentum
- In the 4th quarter, prime rents rose in Munich (+ EUR 2.50/sq m), Hamburg (+EUR 1.00/sq m) and Berlin (+EUR 0.50/sq m). In 2023 as a whole, an increase was recorded in all five markets – by an average of 5.9 percent. Düsseldorf (+14.3 percent) and Munich (+8.1 percent) recorded the strongest growth.
- There is a mixed picture with regard to the average rents, for which the lettings of the last twelve months are taken into account: in Frankfurt and Düsseldorf they fell compared to the previous quarter, in the other markets they increased.
- Rent-free periods in prime central locations remain at 7 percent, based on a 5-year lease across all top-5 markets.
Vacancy: vacancy rate at 2015 level
- Office vacancy in the top-5 markets stood at 5.44 million sq m at the end of Q4 2023. This corresponds to a vacancy rate of 6.9 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 4.8 percent, while Düsseldorf has the highest rate at 10.4 percent. In absolute vacancy terms Berlin has the most available space (1.43 million sq m), followed by Munich (1.2 million sq m).
- The supply of subletting space barely increased in Q4. It is quoted at 606,000 sq m, more than 50 percent above the previous year's figure.
- A further increase in vacancy is expected in the coming quarters – around one percentage point increase in the vacancy rate by the end of 2024, due to the unlet space in completions and the reduction in space during relocations.
Completions: Highest volume of completions in the past 20 years
- In Q4, 470,000 sq m of office space was completed – a total of 1.46 million sq m in 2023. This is the highest figure since 2003, 65 percent of which was let or assigned to owner-occupiers at the time of completion. The largest completion volumes in 2023 were in Berlin (670,000 sq m) and Munich (407,000 sq m).
- Around 1.8 million sq m is currently under construction and for completion in 2024 –almost twice the 5-year average (960,000 sq m). Currently, 43 percent of this is still available.
- At the end of the 4th quarter, the construction volume was 3.6 million sq m – of which around half is still vacant. Over the last several quarters, the construction volume has declined significantly – by 16 percent compared to the end of 2021 (4.3 million sq m) and by 10 percent compared to the end of 2022 (4.0 million sq m).
