Regional office rents now outpacing Germany’s Big 7 - study
A new research report by Cologne-based Corpus Sireo shows that office asking rents in Germany’s main regional cities rose last year faster than in the country’s seven largest cities, driven by tenant demand for affordable and prime space. Corpus Sireo, since last year a part of Zurich-based insurance group Swiss Life, is Germany’s largest real estate asset manager for third parties, managing about €16.3bn of assets.
Average monthly asking rents in Germany’s 14 key regional cities, such as Dresden, rose 3% last year to €8.10 per square metre, according to the survey compiled by Corpus Sireo and research firm empirica. That outpaced the 1.8% growth in average monthly asking rents to €16.00/sqm registered in the so-called “Big Seven” office markets of Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart. The researcher forecast further rental growth for 2014.
According to Franz Krewel, Managing Director of Corpus Sireo Asset Management Commercial, “This report pinpoints why investors and many of our clients find these smaller and less glamorous key regional office markets in Germany so attractive. Properties in these cities generate higher yielding cashflows than assets in the Big Seven markets while offering prospects of less volatile and solid rental growth.”
He added that yield-hungry investors are increasingly deterred by the high prices and competition to acquire the few available assets in the Big Seven cities, and are instead turning to smaller regional office markets that offer regular rental growth and higher income returns.
German prime office yields fell by 20 basis points last year to between 4.3% and 4.8%, whereas office yields in the 14 key regional city markets are 1 percentage point higher, the Corpus Sireo research shows.
The research methodology for the study has involved bi-annual profiling of average monthly asking rents in Corpus Sireo’s GERMANY 21 Regional Office Market Index. The 14 key regional cities are: Aachen, Bonn, Bremen, Dortmund, Dresden, Essen, Hanover, Karlsruhe, Leipzig, Mainz, Mannheim, Münster, Nuremberg and Wiesbaden.
Mannheim overtook Bonn as the most expensive main regional city following a 10% increase last year that lifted average monthly asking rents to €9.85/sqm, the index shows. Essen and Nuremburg also registered growth in asking rents that exceeded 5%. Across the 14 regional cities, rents range from Leipzig, the least expensive at €6.70, to Mannheim at the top of the list.
Dresden had the highest turnover of the B-cities at about 90,000 sqm from a total office rental area of 3.4m sqm, with average rent of €7.10. The city has been performing well economically, with the number of full-time employees rising by 8.5% over the last three years. With low levels of new construction, vacancy levels have fallen to 9.6% on a steady downward trend.
Stuttgart registered the fastest growth rate of the Big Seven cities with average asking rents rising by 6%, while Cologne suffered a 1% decline.
Corpus Sireo also analyses the rental performance of office stock across the 21 cities based on building age. It shows that the best assets for rental growth are new developments followed by pre-1945 buildings. Offices built in the 50 years ending 1995 registered a 5% increase in asking rents, reflecting the potential for refurbishment and renovation, the study showed.
Krewel added, “The weight of money targeting the Big Seven cities in Germany means that investors are discovering these often overlooked key regional city office markets, where we continue to find attractively priced assets that generate stable income returns.”
The complete report “Germany 21: Regional office market index” can be downloaded at no charge from: www.corpussireo.com/download
Separately, Ingo Hartlief, CEO of Corpus Sireo, told members of the press at the recent MIPIM in Cannes that the group’s new status as a division of Swiss Life was enabling it to prepare the groundwork for a new phase of acquisition and co-investment, after a period last year where it was concentrating on disposals and solidifying its platform as a service provider on €2.3bn worth of assets for third parties.
Hartlief said that the service platform was being expanded and, thanks to the patronage of Swiss Life, Corpus Sireo would again be actively co-investing with partners on new acquisitions with stakes of between 5% and 20%. Under the old ownership structure (the company had three German savings banks as co-owners) this new approach would not have worked, he said. The company is forming a new acquisitions unit under veteran Corpus Sireo manager Roy Brümmer to look at single and portfolio acquisitions from €5m upwards, sourcing on behalf of national and international clients as well as its parent. Targeted assets will be residential, office, retail and healthcare assets..
Last year Corpus Sireo booked pre-tax profits of €42.6m with its 560 employees, double the €21.5m of 2013. Funds from operations jumped to €72m from €41m. During the year it sold own and third party assets worth €2.3bn, and signed on new or extended residential and commercial leases for nearly 750,000 sqm.