Market Report 2011 GerMany - Europe Real Estate

8
Modern office buildings in short supply
The vacancy rate, which rose from 9.8% to 10.2% based on the average for the seven
major office centres between January and September, had already declined during
the final quarter of 2010. This trend highlighted a structural shift within vacancy
levels: Whereas the supply of modern office space available in the short term has
fallen, vacancy levels in the average and non-renovated office segment have further
increased.
According to BNP Paribas Real Estate, modern office stock accounted for an average
of around 32% of the vacancy in the seven major locations at the end of the previous
year.
Compared to the previous year, the overall geographical vacancy structure has shifted
slightly in favour of the peripheral office locations: Around 30% of all vacancies are in
city-centre locations, roughly 27% in city suburbs with 43% on the periphery of the
markets (comment: Significant differences exist between individual markets in this
respect due to geographical structure. Whereas the office market in Berlin is largely
concentrated in the centre of the city, non-central or peripheral locations in Munich
and Stuttgart play a relatively important role.).
To date, only prime rents for core-properties are trending upwards
Since core office space is in short supply again in some city centre areas, the fourth
quarter saw improvements in nominal rents for prime properties in some markets,
for example, in Dusseldorf’s financial district and in prime locations in Berlin’s inner
city. Viewed across all seven locations, prime rents were therefore 0.7% higher on
average compared with the previous year. However, over the whole year, markets did
not develop in a uniform manner. This meant that prime rents in both Munich and
Hamburg suffered to a degree in the year-on-year comparison (down 3.3% and 2.2%
respectively), although increases or at least stabilisation have recently been recorded.
With the exception of Munich, rents for high-quality properties in non-central suburban
city and peripheral locations have not yet moved upwards.
It should be borne in mind in this context that the nominal rents continue to be supported
by generous incentives for tenants. Consequently, the extent of the rent-free
periods in new five-year leases at the end of 2010 was roughly ten months.
Upturn in the office market expands in 2011
The prospects for an increasingly dynamic recovery in rental markets for office space
during the coming months are good: The economic upturn will gradually impact on
the labour market, in the number of office employees and therefore in demand for
additional office space. In addition, a large number of five and ten-year leases that
were concluded during the boom years of 2001 and 2006 are due to expire this year.
As a result, we can expect a large take-up in floor space and locations, which will
also mean high levels of letting activity in the seven major markets in 2011.
in million m 2
TOP 7: Vacant office space
9
8
7
6
5
4
3
2
1
0
'03 '0 4 '05 '0 6 '07 '0 8 '09Q3'1 0'10
Modern vacancy Other
Source: Calculation by IVG Research based on data
from BNP Paribas RE
Index of prime rents
150
140
130
120
110
100
90
'0 0 '02 '0 4 '06 '0 8 '10 12e
Berlin
Frankfurt
Munich
Source: IVG Research
Basis 2005 = 100
Dusseldorf
Hamburg
Stuttgart