Berlin seen as offering highest office rent rise potential in Europe

The highest increases in European office rents over the next five years can be expected in Berlin, according to research group Scope. The Berlin-based Scope is incorporating the research traditionally done in this area by Feri Euro Rating, which Scope acquired last year.

Scope has analysed the 20 most important European office markets by market size and liquidity. These include Berlin, Madrid, Munich, Dublin, Barcelona, Amsterdam, Frankfurt am Main, Hamburg, Stockholm, Paris, Milan, Düsseldorf, Vienna, Budapest, Helsinki, Copenhagen, Brussels, Prague, Warsaw and London. Of the cities in the list, only Berlin and Madrid merit an A-rating.

Rents will rise in Berlin by 4.4% a year through 2021, followed by 3.6% annually in Berlin, according to the Scope research, headed by Manfred Binsfeld who compiled the annual rankings for Feri Euro Rating in the past. The drivers of Berlin's new ranking at the top of the list are the unprecedented rise in new office jobs in the city, along with very low vacancy rates.

Last year's top ranking cities included Dublin, Barcelona, and again Berlin, while London's office market was already being flagged then as a loser (D-rating). While London has actually performed better than expected (up 0.5% on last year), it is falling against the five-year average of 4.4% annual rent rises of the last five years, and it's not helped by a steady stream of announcements from financial institutions about their post-Brexit plans. It is the only city of the twenty that is forecasting office rent increases of less than 1% annually, after years of steady increases. There is also plenty of fresh supply coming on to the market.

Frankfurt am Main, often tipped as a likely big winner from the Brexit vote, is NOT viewed as positively in the Scope report, which forecasts annual rent rises of 2.7%, giving it seventh place in the rankings. (B-rating).

Berlin (A-rating, up from last year's B-rating), benefits primarily from its dynamic position at the head of all other German cities, with a rise of 4% of office workers since 2014. Munich has had 3% more office workers, with Hamburg, Frankfurt and Düsseldorf seeing 2% gains. Good office property is scarce in Berlin, with not enough new supply coming on stream.

Office vacancies have fallen in all the cities covered in the report, except for London, Warsaw and Helsinki. Along with Berlin, cities likely to see rising rents include Hamburg (particularly attractive for proptechs, for whom a good digital infrastructure is more important than rental price) and Milan (bottlenecks for quality offices). Waning, by contrast, are Dublin and Barcelona. Dublin because of massive price rises of 75% between 2013 and 2016 and a generous pipeline of new supply in the works, and Barcelona for similar reasons, although there has been much less speculative building there so far, so supply is more constrained.