According to research by international real estate consultancy firm Cushman & Wakefield (C&W), Germany's top-5 office locations achieved take-up of 764,000 sq m in Q2 2022, 42 percent higher than a year previously. H1 2022 marks a 30 percent year-on-year increase in take-up to 1.42 million sq m. Letting market recovery is progressing despite Damoclean imponderables regarding the economy, inflation and energy supply hanging over leasing decisions.
Q2 2022 is the third best since the onset of the Covid-19 pandemic. After a somewhat weaker Q1, 16 percent more take-up was recorded. The increase is also reflected in the number of large deals involving 10,000 sq m or more, ten of which took place in Q2 2022. Four of these were in Munich.
For 2022 as a whole, Cushman & Wakefield expects take-up of just under 3 million sq m - which would be 6 percent higher than the figure for 2021. Users continue to be uncertain which mix of office and remote working best suits them and their employees. At the same time, there is pent-up demand because many searches for space were put on hold during the pandemic. Conversely, additional challenges loom regarding the economic climate and the effects of inflation, the Ukraine war and uncertainty about energy supplies.
Munich strongest office market by take-up
Munich led in Q2 2022 with 207,000 sq m of take-up. With the exception of Frankfurt, all of the top-5 locations exceed the previous quarter's result (Düsseldorf +49 percent, Hamburg +34 percent, Berlin +31 percent, Munich +3 percent, Frankfurt -24 percent). The development project pre-leasing by Hamburger Sparkasse (Haspa) in Deutschlandhaus in Hamburg and the commencement of the refurbishment of Haus der Statistik in Berlin (owner-occupancy by Berliner Immobilienmanagement) are the two largest lettings of the quarter each at around 30,000 sq m.
Christian Lanfer, Head of Office Agency Germany at Cushman & Wakefield, comments: "In the first half of the year, we achieved a good letting result. When looking for office space, the central question remains: working in the office vs. remote working. The greater the proportion of remote work, the more important desk sharing becomes for companies. If the space is smaller, users may invest in a higher quality location and fit-out. Finding your own balance between flexibility and on-site collaboration is crucial, but this often only becomes concrete when seeking new premises."
Office vacancy in Germany's top-5 locations stands at 4.3 million sq m at the end of Q2 2022. This corresponds to a vacancy rate of 5.5 percent and is 0.7 percentage points higher than a year ago. The vacancy rate has increased every quarter since Q2 2020. Düsseldorf was the only location exhibiting a reduction in its vacancy rate over the quarter (-0.1 percentage points). In the other locations, the increase was between +0.1 and +0.4 percentage points. Cushman & Wakefield expects further increase to the end of 2022. In search of higher quality space, many occupiers will move into new buildings and vacate older ones. As a result, the general quality of vacant space will continue to deteriorate.
Record construction volume of 4.8 million sq m
In the top-5 cities 4.8 million sq m of office space is currently under construction. This is the highest level since data collection began. Compared to the same point last year, 12 percent more office space is under construction. Munich (1.74 million sq m) and Berlin (1.68 million sq m) are the leaders here.
Although the 230,000 sq m of office space completed in Q2 2022 was less than in previous quarters, completions in the current year already total almost 600,000 sq m, making H1 the strongest first half-year since data collection began in the late 1990s. More than 80 percent of this space was let or owner-occupied at the time of completion. In 2022 as a whole, 1.8 million sq m of new or refurbished office space is expected to be completed - this would be around 40 percent more than in 2021.
All five markets with rising prime rents
Rent increases characterise all areas of office letting. Düsseldorf became the last of the top-5 markets to reach EUR 30.00/sq m per month. All five markets saw an increase in prime rents during the quarter: Düsseldorf +EUR 1.50 /sq m, Frankfurt and Berlin +EUR 1.00/sq m and Munich and Hamburg +EUR 0.50/sq m.
The prime rent index for the top-5 markets stands at 149.2 points (2010=100) at the end of Q2 2022, an increase of 6.0 percent over 12 months. Cushman & Wakefield expects a further increase of 1.7 percent by the end of the year.
Average rents are also rising: Compared to the same point last year, between +EUR 0.60/sq m in Frankfurt and +EUR 2.50/sq m in Munich.
Rent-free periods in prime city centre locations have risen slightly in Hamburg. Based on a five-year lease, rent-free periods average 5.5 percent across all top-5 markets.
As a result of high inflation, increases in construction costs and growing demands regarding energy standards, rents will continue to rise, according to Cushman & Wakefield's forecast.