North German cities show above-average growth potential - study

Much of recent inward investment across the plains of northern Germany has been into agro-industry and windfarms to feed the electricity grid, but the region also has sizeable cities with much investable commercial property. The Hamburg-based property financier DG Hyp has just published a comprehensive study on the commercial property markets in 8 cities in the region – Hamburg, Hannover, Bremen, Braunschweig, Oldenburg, Osnabrück, Lübeck and Kiel.

The study finds that all the cities exhibit the same trends prevailing nationwide in retail real estate, office and residential, albeit with each city having very individual economic characteristics. Bremen, for example, has the highest unemployment in western Germany at 11%, while neighbouring Hamburg has the highest average wages in the country at nearly €43,000. The states of Lower Saxony (€35,000) and Schleswig-Holstein (€34,000) are towards the lower end of the national income scale, while Mecklenburg-Vorpommern, with no city included in the study, is the country's poorest state, with average income of €24,000.

Summarising the study's main conclusions, Hans Henrik Dige, head of Hamburg property at DG Hyp, says: "The overall positive employment situation, together with a slowing rate of growth of office space, favour steadily rising rents in all the cities covered. We expect above-average rent increases in the residential sector because of growing populations, while the retail sector is benefiting from a strong increase in city tourism in the larger and mid-sized cities."

Office rents have risen by 20% since 2005, with Oldenburg outperforming with a 40% rise, followed by Braunschweig and Osnabrück at 30%. Peak rents in Hannover are €14.30 (per sqm per month), Kiel €13.50, Bremen €12.50, with Lübeck at the bottom end of the scale at €8.70.

DG Hyp expects average rent increases in 2016 of 1.2%, headed by Oldenburg and Osnabrück at 1.8% and Braunschweig at 1.7%. The overall vacancy rate of 5% is expected to fall due to low building activity.

The residential market has benefited from a rise in the population of 4.5% over the last 10 years, with the number of private households rising by a full 8%. This has led to average initial rents rising by between 40% and 60%. Rents averaged €9.80 (per sqm per month) heaed by Hamburg at €13.20, with Kiel and Lübeck at the lower end. Rents in the surveyed cities are expected to rise this year by 2.4%, driven by the influx of refugees, low levels of building, and the sharp increase in the number of single and two-person households. Braunschweig and Osnabrück are expected to rise by 2.9%, and Hamburg 1.5%.

Retail has benefited from the strong economy and increased city tourism, say DG Hyp. Peak rents have risen since 2005 by11% in Kiel to up to 50% in Osnabrück, with peak rents ranging from Hamburg and Hannover at €200, followed a long way back by Bremen at €130, and on down to Kiel at €83 and Oldenburg at €95. Oldenburg suffers from its close proximity to Bremen, while Kiel's city centre is a victim a higher retail density in its suburban areas and of the northern state's generally lower purchasing power.

Hamburg's retail rents should rise by 1.8% this yar, above the average for the region of 1.6%. The DG Hyp researchers expect the highest medium-term portential for rent increase to be in Bremen, Oldenburg, Lübeck and Osnabrück.