Continued demand for prime German offices is leading to a growing supply/demand inbalance in the market, according to new research from adviser Savills.

Continued demand for prime German offices is leading to a growing supply/demand inbalance in the market, according to new research from adviser Savills.

Prime office rents rose 3% in the first half of 2013 while vacancy levels across Berlin, Frankfurt, Cologne, Munich, Hamburg and Düsseldorf currently average 8.4%, down from 9.2% in the first half of 2012, marking the lowest level recorded since 2002.

Savills notes that Berlin, which recorded the lowest vacancy rate at 5.8%, is the only market to remain stable whilst Frankfurt experienced the greatest year-on-year decline, from 14.7% in H1 2012 to 12.4% in the six months to end-June.

Together with the forecast low completion volume of 940,000 m2 in 2013, Savills expects vacancy rates to decline further this year.

'In almost every city available prime space in central locations has become rare so that fewer options are available to occupiers seeking new premises in Germany,' commented Marcus Mornhart, managing director and head of office agency at Savills Germany. 'Tenants are therefore forced to renew their existing lease or to switch to alternative space categories.'

Despite the growing need for new prime space, obtaining financing for new speculative developments remains challenging with lenders requiring high levels of pre-lets and equity. The only market included in the firm’s survey with noticeable speculative development is Düsseldorf where local investors and private equity buyers provide equity or mezzanine capital for developments.