Despite the ravages of the war in Ukraine and the creeping uncertainty afflicting German companies' industrial planning, the commercial property market in Berlin is holding up robustly, was the message REFIRE clearly picked up at a recent site visit and briefing by GSG Berlin.
The event was the 4th annual Commercial Pulse, an overview of the Berlin commercial and industrial property market from broker Savills and market researcher Bulwiengesa, as well as a specific presentation of GSG's figures, and GSG's take on the trends driving demand for office and light industrial space in the capital.
GSG Berlin has about 1 million sqm of lettable space across 43 urban industrial parks, making it the largest private office and commercial landlord in Berlin. Its portfolio includes spaces ranging in size from 20 to 20,000 sqm for use as production facilities, offices, workshops or warehouses in architecturally imposing commercial courtyards and modern business parks, mainly in city centre locations with direct connections to the transport network. As such it can almost be viewed as a proxy for the Berlin office market as a whole, albeit operating at a lower level of tenant rents than the average across the city.
The 56-year old GSG is now 100% owned by CPI Property Group, the vehicle of Czech billionaire Radovan Vitek. CPI's CEO Martin Nemecek recently described GSG as "a jewel within the CPI portfolio", which now also includes a majority holding in Vienna-based Immofinanz AG since June of this year.
Outgoing CEO Sebastian Blecke ran through the most salient figures, particularly those driving Berlin commercial rents. Office take-up in the first half of 2022 is 390,000, above the 10-year average, while vacancy rates are 3.5% - the lowest of any of Germany's Top 7 cities. Last year Berlin added a further 626,000 sqm of office space, the highest level since 1990, with completions of 585,000 sqm new space projected in each of 2023 and 2024, notwithstanding uncertainties due to the situation in Ukraine. Berlin now has 835,000 office workers, despite many companies introducing flexible working-from-home models since corona.
The main drivers of growth are SMEs in the so-called TMT sector (technology, media and telecoms), which has added 46,500 workers over the past five years, with a further increase of 25,000 expected before the end of 2022. Berlin is the undisputed first choice of city for young start-ups, with about 60% of all venture capital flowing into Berlin. As a location for fintechs, the city has displaced Frankfurt, despite Frankfurt's traditional dominance of the banking sector.
Bulwiengesa board member Sven Carstensen, also at the presentation, said that due to young companies keen to secure talent, Berlin's office workforce is likely to continue to grow at a steady pace over the next few years. "In our forecasts, we've got Berlin experiencing the highest growth rate of 7% nationwide", he said.
Savills head of Berlin office Philipe Fischer said, ""Particularly in the small and medium-sized space segment, we are observing more dynamism again. Many companies held back on lettings in the first two pandemic years and are now catching up. Due to the increasing importance of hybrid work models, the requirements of users in terms of location and equipment have changed. Central spaces with a high quality that also meet ESG standards are particularly in demand."
GSG's Oliver Schlink highlighted the importance of strong local relationships with construction companies and local authorities in being able to commit to an expansion programme given the current difficulties. GSG's average rent is under €10.00 per sqm (per month), a far cry from peak Berlin office rates of €42.00 per sqm. It plans further investment of €500m by the end of 2023, which will push up its own vacancy rate from about 3.5% to 7% while those building works are completed.
Schlink commented: "In addition to construction companies and tradesmen who have already been working at high capacity for some time, supply chains for building materials have now been disrupted by the Ukraine war and financing costs are rising due to the turnaround in interest rates. Those who do not have resilient, established relationships with the regional construction sector and are developing on the basis of high borrowings are going to face major challenges in this worsening situation." With the backing of CPI, in other words, GSG can plough on with its expansion where others are dependent on increasingly unwilling banks.
We were also enlightened as to how GSG is tackling its energy provision. Communal areas in GSG's properties have been supplied with green electricity since the beginning of the year, while the needs of a third of its lettable space are covered by their own photovoltaik systems. By the end of next year, the entire lighting technology will be replaced by LEDs, while numerous pilot projects are in operation for water consumption measurement and analysis, and further expansion of broadband internet throughout. At this point 17 of the GSG office/industrial complexes have gained the highest WiredScore certificate, an increasingly recognised seal of digital approval.
These advances are all the more interesting given the very old nature of many of GSG's campuses. We met, for example, in a huge red-brick industrial complex that once housed the legendary AEG, at a time a hundred years ago when Berlin was the manufacturing capital of Europe. As Schlink commented, "With our large building stock comes at least as much responsibility in terms of sustainability. On the one hand, we're optimising our building operations in terms of consumption and emissions. On the other hand, by constantly upgrading our spaces in buildings that are in some cases more than a hundred years old, we can enable maximum efficient use of the grey emissions that are generated for every new building and that account for around half of the emissions over the entire life cycle."
