Office rents on outskirts of Berlin to soar by ‘significantly more than 50% in next 5 years’

Office rents on the outskirts of Berlin will soar by ‘significantly more than 50% in the next five years’ as rapidly rising rents and lack of availability in the city centre force firms to move further out, Rainer Schorr, founder and CEO of PRS Family Trust in Berlin, told REFIRE this month.

‘Office rents have risen so quickly in Berlin’s city centre and vacancy rates are practically nonexistent,’ he said. ‘Besides, it’s extremely hard to find a space that’s 6,000 sqm to 7,000 sqm in the city centre. And other offices, structurally, are not always fit for rent.’

Berlin will be in need of an additional 1.5m sqm of office space within the next few years, Schorr warned, which will, inevitably, drive companies to look beyond central locations: ‘In areas such as Teltow, near Zehlendorf, there is around 600,000 sqm office stock and rents are half those in the centre. Older buildings there can be let for as little as €9 to €10 per sqm, which rises to €14 to €16 per sqm for a new-build. In the city centre, you’ll typically pay at least €28 per sqm. Even in Potsdam, which is quite a small submarket, average office rents are around €20 per sqm.’

Prime office rents in the centre of Berlin in areas such as Charlottenburg rose to around €32.50 in the third quarter of 2018, up from just €21 in 2013, according to JLL. Indeed, Berlin outperformed its German counterparts to record the strongest office rental growth in the third quarter, up 3.2%, according to JLL’s European Office Clock Q3 2018, published last month. Berlin recorded the strongest office rental growth in the ‘Big 5’ because there is almost no vacancy. All of Germany’s ‘Big 5’ markets witnessed strong growth in the third quarter, includingHamburg (+1.9% q-o-q), Düsseldorf (+1.9%), Munich and Frankfurt (both up +1.3%).

The lower rate of business tax in less central locations in Berlin is also enticing companies, according to Schorr. The corporate tax rate in Germany is a combination of a uniform tax rate of 3.5% (base rate) and a municipal tax rate, or Hebesatz, depending on where the business is located. In Munich, the combined rate stands at 33%, compared to around 30% in the centre of Berlin. ‘In somewhere like Teltow, it can be around half that, which makes it very attractive to companies,’ Schorr said.

However, the big challenge is getting financing for office developments in such locations, he said. ‘You could go to all the traditional lenders in Germany and most of them would refuse to finance office developments on the outskirts, even if rents are going to go up a lot. At the moment, private equity groups in the UK are the main financers of such projects and even then, schemes tend to be 90% pre-let so there’s not much new, truly available space coming to market.’