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The trends seen over recent years in Germany continued aggressively throughout 2019 across Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart as the office markets hardened further for occupiers. As a consequence, in 2020, all seven major cities now have a severe shortage of space and the trend appears to show no sign of abating.
Berlin has been the most affected with a CBD vacancy rate of just 1.2 per cent, the lowest of all major cities in Europe, according to our data. The average CBD vacancy rate across the top German cities is at a historically low 3.1 per cent, equating to less than one year of supply in each city. With the market so tight in Berlin, development is predicted to see a particularly strong 2020, with over 700,000 sq m due for completion, double the amount in 2019. This should go some way to easing supply pressure.
The extreme shortage of space is having a negative effect on occupiers as rents are continuing to rise across all seven cities. Frankfurt boasts the highest prime rents at €45.00 sq m per month, followed by Berlin at €39.70 sq m per month. The lack of space has meant that rental prices in non-prime markets have also risen with many traditional prime occupiers being priced out the market. The average non-prime rent has increased by 33 per cent in the last five years across the top seven cities, compared with 23 per cent for prime rents, so considerably above inflation rates.
This trend is predicted to continue into 2021 with rents rising 3-4 per cent per annum during 2020 although with more stock coming to market this should be roughly 50 per cent lower than the rental growth witnessed in 2019.
Due to the economic slowdown across Europe and a multitude of geopolitical challenges, which is producing a lower number of jobs and weaker economic activity in general, less take-up is largely predicted in 2020. However, the German economy seems to be recovering with employment in January 2020 up 0.5 per cent year on year, according to provisional calculations of the Federal Statistical Office.
Occupier activity in Germany in 2019 was led by ‘knowledge-intensive’ and information communication companies, each at 14 per cent, and trade and logistics businesses at 13 per cent. The manufacturing sector, typically a strong sector across the country, accounted for roughly 8 per cent, significantly down from its 5-year average of 10.2 per cent.
We expect the upcoming months will continue to be a challenging market for occupiers due to the shortage of available space, leading to a high amount of competition for the best assets and hardening incentives from landlords.