Public sector key driver behind German office take up in Q1 2021

Take-up in Germany’s top six office markets in Q1 2021 fell modestly by 3 per cent year on year to 653,500 sq m with the public sector continuing to provide stability in the office market. 

It accounted for a total of approximately 136,000 sq m of office lettings, around a fifth of take-up. The public sector has been particularly active in Cologne, accounting for approximately 37 per cent of overall take-up. In Frankfurt am Main and Hamburg, it was responsible for approximately 30 per cent of office lettings.
“Landlords perceive the public sector as a desirable tenant: it has a range of requirements as an occupier and is prepared to complete lettings in a variety of locations and property of varying quality,” says Panajotis Aspiotis, Managing Director and Head of Agency, Savills Germany. Overall, in cities where the public sector accounted for an above average share of lettings, quarterly take-up also increased year on year. Cologne registered the sharpest increase at 127 per cent.
Rents remained largely stable in the top six office markets, with prime rents falling by 0.8 per cent compared to the previous quarter to EUR35.40 per sq m/month. The median rent* rose by 1.9 per cent to EUR17.71 per sq m/month. 
The average vacancy rate across the top six office markets currently stands at 3.8 per cent. This represents an increase of 30 basis points compared to the previous quarter and 63 basis points year on year. Munich witnessed the strongest increase at 60 basis points. Cologne is the only top six city where the vacancy rate fell. One reason for the increase in vacancy rate is the high development completion volume as some 1.75 million sq m of office space was completed in 2020. This is approximately 75 per cent above the ten-year average.
The completion volume in 2021 will also be significantly above average at 1.6 million sq m (average from 2015-2019: 0.9 million sq m), of which approximately 65 per cent is already pre-let. This does not mean, however, that the vacancy rate of new-build projects will increase. “New-build developments with modern fit-out remain in demand. Particularly in view of the current uncertainty, occupiers are focusing on quality and flexibility of design options, for which they are also willing to pay premium rents,” says Aspiotis.
“Once there is greater clarity, companies will become more active, generating more demand in the office market. In particular, occupiers are now conscious that workplaces will have to fulfil the requirements of a traditional office while also being conducive to remote working,” says Dr Martin Kern, Senior Consultant Research, Savills Germany. “However, since companies have a lead time for their plans, we do not expect any noticeable increase in letting activity before the second half of 2021,” adds Aspiotis.

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