GERMANY - Lower company revenues will not stop 2011 from being an exceptional year for the office rental market, but the market will nonetheless weaken next year, Colliers International Germany has warned.

Fewer project completions, higher turnover figures and a large number of existing rental contracts means that the vacancy rate will fall to around 7.3m sqm  - is below the 2010 figure of 9%, the company said.

"However, the 10-year average of close to 7m sqm vacancies will only be reached again over the medium term because of the receding revenue prognosis," said Andreas Trumpp, head of research at Colliers in Germany.

In general he sees an "above-average" year for office rental with the turnover in the six most important office markets increasing by 8%, compared to 2010 to around 2.85m sqm, according to Colliers' calculations

"Compared to the average of the last 10 years this is even an increase of 12%", noted Trumpp and added that in 2012 the turnover would be back to the long-term average at between 2.5m and 2.6m sqm. He attributed this to many companies having already unearthed and implemented their moving and expansion plans previously put aside due to the financial downturn.

Given the dampened economic outlook, this will again reduce demand for office space, Trumpp explained.

But for 2011, leading rental yields in Berlin, Hamburg, Munich and Stuttgart should increase considerably, climbing above last year's level to 5%.

On the other hand, Düsseldorf and Frankfurt will see considerable lower top-rents than last year with a drop of up to 15% as demand for high-end properties was considerably lower.

"Top-rents could climb further in some locations but in general they will have reached a peak in 2011 in the current cycle," Trumpp said.

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