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Above-average leasing figures for office space market in Berlin despite lack of year-end rally

Vacancy rate continues to fall | Top lease prices remain stable

In 2013, the market for office space in Berlin was unable to repeat the impressive results from the preceding two years. Last year saw no sign of the typical year-end rally and, at 560,000 m², property turnover was around 19% below the record result of 693,000 m² in 2012. Despite the significant drop in turnover, the Berlin market can nonetheless look back on an above-average year. The turnover volume for 2013 is 12% above the ten-year average (500,100 m²) and represents the third highest lease volume ever recorded in the German capital.

Analyses conducted by international real estate services company Cushman & Wakefield (C&W) primarily attribute the fall in turnover to the lower number of large-area lease contracts. 2013 saw only one transaction for an area larger than 10,000 m²: a project development for owner-occupant Deutsche Rentenversicherung which entered construction. By contrast, ten contracts of this size were recorded in the previous year, amounting to a total area of 180,000 m². “Although there were fewer large-scale new leases,” said Gerald Dietzold, head of the Berlin Office Space Leasing department at C&W, “we recorded a very large number of lease extensions. This includes a contract extension by the German Federal Ministry of Family Affairs, Senior Citizens, Women and Youth for 79,000 m², as well as international companies that extended or optimised lease contracts for large office spaces. This represents a clear commitment to Berlin as a location.”

For areas of below 10,000 m², the overall situation for new leases is stable. This applies in particular to what is traditionally the strongest market segment in Berlin – leases of below 1,000 m².
The volume of new leases in this segment amount to around 285,000 m² in both 2012 and 2013. The mid-size segment between 3,000 m² and 10,000 m² exhibited an upward trend, with an increase to 120,000 m², representing growth of 31% compared to 2012.

Berlin's creative scene once again produced strong leasing results in the past year. The turnover recorded for media companies increased 58% to around 25,500 m², and the IT sector contributed around 57,000 m² to the total lease volume for the second year in succession. Together, these two sectors accounted for 15% of the market volume in 2013. The market for office space in Berlin is highly diverse. The previous dominance of public authorities as the most important lessees is on the wane. Although government leases still account for around 10% of the total annual turnover, this figure is repeated for companies from the consultancy sector, training, social institutions and IT.

Vacancy rate falls again

The vacancy rate in Berlin continued to fall during 2013 and now stands at 1.17 million m². Based on a total office space stock of 17.63 million m², this equates to a vacancy rate of 6.6% (December 2012: 7.0%). “We expect the vacancy rate to fall moderately once more during the course of 2014,” said Dietzold. As regards the quality and location of the available space, Dietzold emphasises that mid-range space is becoming increasingly scarce. “In 2014, we are likely to see a further shortage of supply in this segment. Many customers will have to decide between leasing higher-grade, and therefore more expensive, offices in 1A locations or consider Berlin's B and C locations as an alternative.‘Although the willingness of lessees to pay higher lease prices has increased in general due to the positive economic situation, B and C locations are likely to find favour in many cases.”

Top lease price remains stable

Since the end of 2012, the maximum lease price has remained stable at EUR 22.00 per m²/month. By contrast, the average lease rate (EUR 12.25 per m²/month) is tending upward, with higher lease prices observed in desirable locations such as Kreuzberg, Friedrichshain, Prenzlauer Berg and Mitte in particular. Overall, owners have become less willing to offer incentives.

“We have a very positive outlook for 2014,” says Inga Schwarz, Head of Research at Cushman & Wakefield. “The Germany economy remains in good health and we are seeing a high level of demand from lessees in Berlin. Companies from the first start-up generation in particular are now growing and are on the lookout for additional space. This should help to achieve above-average lease volumes again in 2014, and we forecast a volume significantly in excess of 500,000 m². Whether the market can reach the 600,000 m² mark remains to be seen.”