Germany's office market to profit from global growth: Deka

German office rents are expected to grow by 2% next year, with vacancy rates falling to 11.2% due to an improving economy, according to Deka's Immobilien Monitor 2011 published on Wednesday.

Over the new few years, German office rents are expected to grow by as much as 5% a year, said Karsten Junius, leader of capital markets and property research at Deka Bank, speaking during the bank's teleconference.

Economic growth in Germany next year is expected to outstrip the Eurozone average and to be significantly higher than during the financial crisis, according to Junius. The bank is forecasting GDP growth in Germany of 2.1% next year and 1.8% in 2012, compared to a European average of 1.3% next year and 1.6% in 2012. Germany’s growth is due to a number of factors, including a stable housing market, a competitive environment, and the fact that construction makes up just a small percentage of overall GDP, he said.

'This is a good sign for Germany’s commercial property market,' said Matthias Danne, chairman of Deka's property management board.

Deka is predicting total annual returns for German offices of between 4.6% and 5.7% between 2011 and 2015, which is slightly below the European average of 6.3%. 'One of the reasons for this is the stability of the German market during the financial crisis,' Danne said.

Annual average office returns in the eurozone are expected to be around 8.1% next year before contracting to 6.2% in 2012. Top locations in the period 2011 to 2015 include London City and Warsaw, which are expected to generate returns of between 9.7% and 9.9%. Madrid, Paris and Prague are expected to generate annual returns of 7.5% to 9.4%, according to Junius.

Nevertheless, the bank expects development across Europe to continue to be polarised next year. In countries with structural problems - such as Spain, Ireland, Portugal, Italy and Greece - growth will be significantly lower than before the financial crisis, according to Deka.

However, countries such as Germany, Austria, Finland and the Netherlands should benefit from the expected growth of 4% in the global economy next year. 'Due to their competitiveness, structurally strong countries in Europe could exploit the low interest rate environment and increasing economic activity. As such, we expect strong economic growth in these countries over the next few years,' said Junius.