JLL’s VICTOR Prime Office Index ends 2017 on a high

JLL’s VICTOR Prime Office Index ended 2017 on a high, up 4.1% at 180.7 points in the fourth quarter.

Düsseldorf, Hamburg and Berlin were the top performers, up 8.5%, 6.3% and 5.3%, respectively, on the previous quarter. Overall, the ‘Top 5’ markets showed aggregate growth of 10.1% last year, beating the 8.5% aggregate performance between 2012 and 2016.

Munich and Frankfurt also gained due to rent increases, though not as significantly. Munich’s top location showed quarterly growth of 1.8 %. This resulted in an annual performance of just 2%, substantially below the average of the other four cities, whose annual performance ranged from +7 % in Hamburg to +16 % in Frankfurt.

‘Rental markets are kicking in,’ Ralf Kemper, head of valuation and transaction advisory at JLL Germany, told REFIRE. ‘I think the index will go up again this year, but at a slower pace than 2017, mainly driven by rental growth.’

Vacancy rates in the ‘Top 5’ averaged just 2.4%, the lowest since the index was launched in 2003. ‘How much lower can vacancy rates go?,’ said Kemper. ‘After all, 2% is practically fully-let. Developers and banks have been very cautious regarding development and development lending. There’s not sufficient supply in the market and the office supply pipeline will be small, at least for this year.’

Going forward, office investment will be more about how offices are structured to create more flexibility, including co-working spaces, and at the same time to provide more health and well-being elements, according to Kemper.

Prime yields continue to fall. In the case of Berlin, they have fallen to less than 3%, compared to 3.5% in London and 3% in Paris, according to JLL. Nonetheless, Berlin remains attractive in terms of capital values, relative to cites such as London. ‘This is why I think international investors are still relaxed about buying there, despite the low yields,’ Kemper said.

Prime offices in Berlin sell for around €12,000 per sqm, well below price in London (above €35,000 per sqm) or Paris (above €20,000 per sqm), according to JLL. (ssk)