German office markets show signs of bottoming out: Savills

The German office property markets (Berlin, Düsseldorf, Frankfurt, Hamburg and Munich) remain weak, but the cyclical downturn is showing signs of deceleration, Savills said in a new research report issued during the second day of the EXPO REAL fair in Munich. Take-up in the first nine months of the year was almost a third (- 32%) below the previous year’s figure, the exception being Berlin where vacancies increased across the board. On average almost 10% of office space in the city is unoccupied.

Due to the weak demand, prime rents are slightly below their previous year’s level in almost every market. Over the past few months downward movement was only marginal (Berlin, Frankfurt and Munich) or stable (Düsseldorf and Hamburg). Average rents are slightly below the level of Q3 2008. Furthermore, in numerous lease contracts concluded in locations or properties less sought-after incentives of up to 10% of the agreed rent have been granted to the tenants. Hence the net effective rents in some cases may be well below the nominal rents published.

‘Although in all markets the letting performance considerably lagged behind its previous year’s result we did not record a further acceleration of the downward movement of the past months’, says Daniel Gedack, managing director and responsible for Office Agency at Savills in Germany.

‘All of the five markets suffered a double-digit percentage reduction in take-up, with the largest falls being recorded in Düsseldorf (- 51%), followed by Munich (- 36%), Hamburg (- 31%), Frankfurt (- 26%) and Berlin (- 21%). Thus Berlin is proving considerably more stable than three months ago when take-up had declined by 30% compared to the previous year. By contrast, Frankfurt turned in a weaker performance than its half-year result (- 19%), not least due to the large-scale letting to Deutsche Bahn in Q1 which now has an increasingly reduced effect on the letting figures.

Savills forecasts a total take-up of approximately two million m² in the five markets for the whole of 2009 compared to 2.83 million m² in 2008, marking a reduction of approximately 29%. With the newly-elected business-friendly coalition government, positive impulses can be expected from next year onwards which will become apparent in the letting results.