German office occupiers are deferring leasing decision and seeking new office space concepts

According to Savills latest research, German office vacancy rates have risen for the first time in years, a trend that is likely to continue over the coming months owing to economic and structural developments.

Take-up across the top-seven markets (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart) between July and September totalled almost 600,000 sq m. While this represents a modest increase compared with the second quarter, it is only around half the average figure of the last five years. For the fourth quarter, the active requirements in the market suggest higher take-up than in the previous two quarters.

“Many companies are reviewing their workplace concepts and developing guidelines for flexible working. A number of companies are still in the initial stages of doing this and so are reticent when it comes to making leasing decisions at present. A further consequence of the economic uncertainty is that those who do not have to lease new office space are also refraining from doing so in the current environment,” says Panajotis Aspiotis, Managing Director and Head of Agency, Savills Germany.
Major lettings are particularly conspicuous by their absence. The number of lettings of 10,000 sq m or more fell by two thirds year on year, with most of these deals being attributable to the public sector. By way of comparison, the number of lettings below 500 sq m during the year to date is down by only a fifth compared to last year.
“In many cities, public sector institutions have contributed significantly to take-up figures. Since the associated rents were mostly above-average for these cities, these deals have not only stabilised demand for space but also rents,” says Matthias Pink, Head of Research Germany for Savills.
Rents in central locations remain generally stable. However, the willingness of landlords to grant incentives is increasing across locations and properties of all qualities.
“There is currently a strong willingness to extend existing leases both on the landlord and tenant side. Extensions allow landlords to avoid vacancies in a period of weak take-up, while tenants save on search and relocation costs at a time when, in many cases, their revenues are in decline. Depending on the specific circumstances, landlords are even granting incentives in such cases in order to secure a longer lease term in return,” says Aspiotis.
While the vacancy rate in most cities only increased marginally, many occupiers are preparing to sublet part of their office space. As the extent of this impact remains to be seen, the negotiating position of occupiers is likely to improve. In general, any projections remain encumbered with a high degree of uncertainty in the current market environment, even in terms of leasing activity.