Office rents in mid-size cities record strongest growth

Office rents in mid-size German cities have recorded the strongest rental growth this year, according to research published this month by the IVD.

In particular, office rents in cities with between 250,000 and 500,000 have benefitted from the sharpest growth at 4.76% this year, up from 3.79% last year. The study was based on 350 cities.

‘Many companies are avoiding taking space in big cities due to such strong demand for office properties,’ said IVD president Jürgen-Michael Schick.

Rents are even increasing in the basic and mid-market office categories in larger cities, according to Schick, who notes that basic and mid-market rents are up by 3%, compared to 0.51% for basic properties and 1.57% for mid-market ones last year.

Even cities with fewer than 30,000 inhabitants as well as cities with fewer than 50,000 inhabitants have profited from business development, with rents in all office categories rising by more than 2%, up from 1.5% last year, according to the IVD.

‘The economic upswing has finally taken hold in smaller cities,’ said Schick.

Interestingly, only cities with between 100,000 and 250,000 inhabitants witnessed weaker rental growth below 1% for basic properties, rising to 2.6% for mid-range buildings (2016: 1.3% and 2.34%, respectively).

Frankfurt and Munich top prime rents table

Frankfurt and Munich top the prime rents table this year at €38.50 per sqm and €35.50 per sqm, respectively. Berlin comes in third, at €27.50 per sqm, followed by Düsseldorf (€26.50) and Hamburg (€25), according to the IVD.

Benchmark rents are also increasing across the board. Munich reached a new high this year, at €24, up from €22.50 last year. As such, rents in Munich have tripled in the past decade. Benchmark rents in Frankfurt this year have now reached €15.50, up from €14.40 last year.

Unsurprisingly, vacancy rates have also fallen. In Stuttgart, Berlin and Munich, they now stand at 2.9%, 3.2% and 3.3%, respectively. In Frankfurt, however, vacancy rates are still almost 10%, according to the IVD. Historically, Frankfurt has always had the highest vacancy rate, even for prime offices. ‘This is due to Frankfurt’s monostructure as a financial hub,’ Schick explained. ‘Frankfurt has still not fully recovered from the financial crisis. However, it is expected to benefit positively from any “Brexit effect”,’ Schick added.