Market in Minutes - Germany office markets Q2 2018

Supply shortage is curbing take-up - rental growth continues but will slow from 2019

• All of the top six office lettings markets are characterised by massive supply shortages, with overall office availability totalling just 3.4 million sq m (Graph 5). This corresponds to a vacancy rate of 4.7%. The supply shortage has become so acute that properties previously considered as base vacancy and earmarked for demolition or change of use can now feasibly be marketed as offices again thanks to the strong increases in office rents.
• One consequence of the supply shortage is rising rents. Prime rents rose by 1.2% compared with the previous quarter (Table 1) and are likely to increase by a further 3% by the end of the year. Conversely, take-up declined by 6% compared with the first half of 2017 and could end the year 10% to 15% lower than last year's total (Graph 4).
• From 2019, however, the rate of rental growth is likely to decline, which is partially attributable to the increasing pipeline. Significantly more office space is scheduled to come to the market in 2019 (1.2 million sq m) and 2020 (1.7 million sq m) than this year's total of approximately 850,000 sq m (Graph 9). While 60% and 40% of these respective totals is already prelet, availability will still remain higher than in recent years.
• As the supply increases, economic risks will also rise and could potentially dampen demand even if long-term employment projections remain positive (Graphs 1 + 3).