German offices to power on as vacancy shrinks and rents rise

Strong rental growth will ensure another boom year for office investment in Germany in 2019, agents and investors are predicting.

The office vacancy rate shrank across all six top cities last year, and 2018 ended with less vacant supply than an average single year’s take-up.

According to Savills, occupiers snapped up a total of 3.7 million m2, while there was 3.15 million m2 of vacant space in Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne and Munich. This is equivalent to an average vacancy rate of 3.7%, and companies paid a significant average 6.8% increase in rent.

One result is a surge in investors looking for buildings or sites to buy with opportunities to lease up and capture the rental growth, a trend likely to continue for some time. Union Investments, for example, which manages €40 bn of property, reported recently that more than 50% of its commercial acquisitions during 2018 were refurbishment, reletting or development projects.

Union said its largest 2018 target market for acquisitions was Germany, where it invested €1.13 bn of the total €2.3 bn it spent.

Some 16 of these deals were projects with angles, such as the Aqua office tower, in Frankfurt’s ‘Four’ quarter. CEO Reinhard Kutscher explained: ‘In this late-cycle market phase, this is the most important instrument for gaining access to properties with sustainable earnings perspectives.’

Savills says some €2 bn alone that was invested in development sites in 2018 was a 55% jump compared to 2017. This year has already kicked off with many more examples, such as AXA IM - Real Assets clinching the acquisition of TechnoCampus in Berlin for a rumoured €175 mln.

On the edge of the city centre, in the Siemensstadt submarket in Spandau, TechnoCampus comprises four buildings with 39,000 m2 of office space. But AXA has bought it for the potential to develop two further buildings with 20,000 m2 of space in a district where average rents remain significantly below CBD levels.

John O’Driscoll, AXA IMRA’s European head of transactions, says: ‘By delivering one of the first institutional quality office buildings outside the Berlin CBD, we will be able to materially improve the rental tone, in line with our value-add strategy.’

Another looking to capitalise is LaSalle Investment Management, which this month acquired two office assets in Munich submarkets from AXA, for its open-ended, pan-European Encore+ fund. One, ‘Else’, two offices totalling circa 25,000 m2 in the city’s Westend, has potential for redevelopment, LaSalle said. Fund manager David Ironside points out that Munich has some of the highest take-up and lowest vacancy rates in Germany, with ‘the potential to underpin future rental growth’.


This story was first published in PropertyEU's sister publication, EuroProperty.


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