Office asking rents in Germany’s main regional cities rose faster than in the country’s seven largest cities last year.
Research by investment manager CORPUS SIREO found tenant demand for affordable and prime space drove the growth.
Average monthly asking rents in Germany’s 14 key regional cities* rose 3% last year to €8.10 per sqm, according to a survey by Corpus Sireo and research firm Empirica.
Regional cities outpaced the 1.8% growth in the average monthly asking rent of €16 per sqm in Germany’s Big Seven office markets of Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart.
Franz Krewel, Corpus Sireo’s commercial asset management managing director, said investors and clients were finding “smaller and less glamorous” key regional office markets in Germany more 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 said.
The weight of money targeting Germany’s Big Seven office markets drove down prime office yields by 20 basis points last year to 4.3-4.8%, the firm said.
Krewel said the weight of money targeting the Big Seven cities meant investors were discovering often overlooked key regional city office markets’ for their “attractively priced assets and stable income returns”.
Record low interest rates and quantitative easing by the European Central Bank mean a benchmarked 10-year German government bond currently yields 0.2%.
That compares with a 4.25% yield for a prime office in Munich, highlighting the historically wide yield differential that lies behind the investor demand for real estate assets.
*The 14 key regional cities are: Aachen, Bonn, Bremen, Dortmund, Dresden, Essen, Hanover, Karlsruhe, Leipzig, Mainz, Mannheim, Münster, Nuremberg and Wiesbaden.