Positive outlook for German offices as prime yields stabilise

The future of German offices looks rosy, according to a survey carried out this autumn by Freiburg-based Center for Real Estate Studies (CRES) and Gesellschaft für Immobilienwirtschaftliche Forschung (gif).

Prime rents in Germany’s Top 5 cities - Berlin, Frankfurt, Munich, Düsseldorf and Hamburg - are expected to rise and vacancy rates are forecast to fall. Indeed, prime rents in Berlin could break through the €30 a sqm barrier for the first time before the year is over, according to the study.

The decline in prime office yields in the Top 5 will tighten before the year end to a greater degree than initially expected. Yields are expected to tighten in all of the Top 5 cities. In Berlin, they are expected to be down by 40 bps by the end of this year, compared to a fall of 50 bps in Frankfurt, 20 bps in Munich, 28 bps in Hamburg and 10 bps in Dusseldorf. Unsurprisingly, investors with deep pockets are expected to dig a little deeper, according to a recent office report by ImmobilienScout24.

However, there is some good news: survey respondents don’t expect prime yields to compress any further in 2018 in any of the five major cities and vacancy rates are forecast to remain, in part, below 3%, compared to around 5% in Berlin at the beginning of 2016. Frankfurt and Düsseldorf tell a slightly different story, though – Düsseldorf’s vacancy rate is forecast to stand at around 7% by the end of 2018.

In gif/CRES’ survey in the spring of 2017, Frankfurt’s vacancy rates were predicted to fall by 50 bps this year; in reality, they have fallen by between 80 bps and 100 bps. In Berlin, they have fallen by 70 bps this year and are expected to fall by 30 bps next year, compared to 60 bps in Hamburg this year (2018: 20 bps), 70 bps in Munich (2018: 28 bps), with no change forecast for Düsseldorf in 2018, following a drop of 100 bps this year.

Germany’s good business framework, coupled with lack of product, means that prime office rents in these cities have risen by between 2% and 7% this year. Düsseldorf witnessed the smallest gains, at 2% compared to 5.6% in Frankfurt, 5.3% in Hamburg and 7% in Munich. However, those gains are dwarfed by the predictions for Berlin: prime rents are forecast to leap by 12% by the end of next year, As a result, Berlin is the German office market with the sunniest prognosis going forward – even after 2018, rents are expected to rise by 4.4% a year until 2021, which would represent the strongest rental growth of any major city in Europe, according to ratings agency Scope in Berlin.

Companies participating in the survey included Aberdeen Asset Management, BNP Paribas Real Estate, Bulwiengesa, Colliers International, Deka Bank and Patrizia Immobilien.