JP Morgan sees scope for rental growth across Germany in 2015

Rental growth is on its way for leading office markets in Germany, according to Joe Valente, head of research and strategy for the European Real Estate Group at JP Morgan Asset Management.

'It is reasonable to expect rents across the main German markets will move higher, possibly 2% over the 2015-16 period,' he noted in a commentary.

Rental values across Germany have been rising in the past 12 months in tandem with falling vacancy rates, he added. 'Given that vacancy rates are now generally below their pre-crisis troughs, development activity is moderate, and economic growth is set to pick up a touch, there seems to be scope for increased occupier activity to push rental values higher over the coming quarters,' he said.

According to recent research, Q1 office occupier data for the leading German cities is mainly positive, he pointed out. 'In annual terms, take-up increased by 21% and 12% in Hamburg and Munich respectively, while Berlin and Frankfurt registered only minor falls of 1% and 4% respectively.

Despite weak take-up, over the past year Frankfurt’s vacancy rate has fallen by 130 basis points to reach 10%, the lowest rate recorded since 2003. Similar downward trends, albeit less dramatic, are also visible in the other cities where vacancy rates have decreased by 20-40 bps to stand at between 6.5% and 7.5%. Those rates are in line with, or below, pre-crisis troughs, Valente pointed out.

'In the absence of a negative shock, there seems little to suggest that rental growth in any of the cities will take a breather this year. Not only are vacancy rates now at their lowest points for years, but development activity is also fairly subdued. In Frankfurt, space under construction amounts to 1.5% of stock, while in Berlin and Munich the rates are around 2%. The pipeline in Hamburg is larger at 2.7% of stock, but much of that is pre-let and not set to enter the market until 2016.'

With vacancy rates heading lower, many companies that delayed office expansion plans over the recent past may now feel that waiting longer will prevent them from securing optimal space, he added.