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Press release including overview chart [PDF]
FRANKFURT, 5th January 2017 – The German economy proved to be highly robust and resilient in 2016 despite all the geopolitical warning signals. Following a somewhat weaker third quarter, the gross domestic product (GDP) clearly picked up again in the last three months of the year. GDP growth of 1.9% is now indicated for the full year, and would count as one of highest rates of increase among the world’s most important industrialised nations. At the same time, Germany is again expected to deliver a positive budgetary balance. The ifo business climate index, which is again clearly in the positive range, reflects this strong economic development while the boom on the German employment market continues apace: at 43.5 million, the average number of people in active employment reached the highest level since reunification and reflects the prevailing upward trend over the past 10 years and more. According to preliminary figures published by the Federal Statistical Office, growth in 2016 was even higher than a year previously. Conversely, the number of unemployed people fell by 160,000 to almost 1.8 million compared to the previous year. The rate of unemployment dropped from 4.3% to 4.0% and means that Germany has the lowest rate of unemployment in the European Union apart from the Czech Republic. “The expansive service sector was primarily responsible for the above-average increase in employment and ultimately served as the basis for a smooth-running office lettings market,” said Timo Tschammler, Member of the Management Board, JLL Germany. Demand for office space in the seven German office property strongholds (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart) remained extremely buoyant in the fourth quarter of the year. Although the take-up volume of 3.9 million sqm just missed the 4-million-sqm mark, it still exceeded the previous year’s volume by 9% as well as the five-year average by as much as around 24%. “An unprecedented amount of space was either rented or sold to owner-occupiers in the Big 7. Considering this record result, similarly strong growth may not necessarily be expected to continue in 2017 - not least because modern spaces are becoming increasingly scarce,” said Tschammler. He added: “Office users therefore endeavour to secure modern and well-equipped space as soon as possible. Improvements in the efficient use of required space is therefore high on the agenda in the search for new offices. At the same time, the concerns and wishes of employees are increasing entering into the equation, which leads to longer and more complex decision-making processes for new lease signings.” Last year’s strong momentum is also reflected by the net absorption figures. Occupied office stock increased by 1 million sqm in the Big 7, and not only remained at the previous year’s high level but also slightly exceeded the five-year average. Outstanding performances were also registered at local level during 2016. In Stuttgart, the take-up volume reached 400,000 sqm and was therefore 39% above the previous year’s record result. Large deals above 10,000 sqm in size were primarily responsible for this development, accounting for 45% of total space take-up. In Berlin, growth of 4% ensured that take-up exceeded 900,000 sqm for the first time. With the exception of Düsseldorf (-19%), all cities were able to report year-on-year growth: Cologne recorded a 41% increase and Frankfurt 34%. Large contracts made a particularly strong contribution to growth on the office property markets in the Big 7. The number of deals for office spaces equal to or larger than 10,000 sqm amounted to 34 in total. These units alone accounted for total take-up of around 737,000 sqm - equating to 18% of the overall result. The 90,000-sqm building project started by Daimler AG in the third quarter of 2016 still represents the largest deal of the year. The premises in Stuttgart-Vaihingen will eventually house 4,000 employees. “For 2017, we expect to see a positive development in demand for space in the seven German property strongholds on the basis of ongoing positive economic data and a further increase in employment at service companies. From today’s perspective, we forecast a take-up volume of 3.5 million sqm,” said Timo Tschammler. This would represent a 12% decrease from the 2016 figure, but should not be interpreted as a sign of a fundamental change in demand-led trends. The fact remains that a potentially higher take-up volume is prevented by the limited choice of suitable space, particularly in central and city centre locations. Vacancies decline further despite rising completions Office space vacancies decreased to almost 5.1 million sqm across all the Big 7 markets. Thus the supply of space available at short notice was reduced by almost 600,000 sqm within the last 12 months. The aggregated vacancy rate now stands at only 5.5%. Vacancy rates significantly above this level exist only in Frankfurt (9.1%) and Düsseldorf (8.1%). Stuttgart boasts the lowest vacancy rate of just 3.7%, and together with Berlin it experienced the sharpest decline in vacancies with a drop of 19% in each of the two cities. This comes as little surprise considering the record levels of demand in both cities. “For office users, the search for suitable new office space thus remains a challenging task. The limited supply of space in central sub-markets means on one hand that companies address their relocation needs at an increasingly early stage in order to secure space. On the other hand, other sub-markets also come under scrutiny. In the latter case, we are already seeing that rental price increases dictated by strong demand are no longer limited to the top locations,” stressed Tschammler.The new construction volume increased almost 28% during 2016 to reach 1.1 million sqm on aggregate. Since only around 17% (190,000 sqm) of this space was available at the time of completion, it will only slightly ease the situation on the supply side. The majority of the space has already been awarded to tenants. “Renting spaces in project developments remains a strong trend,” said Tschammler. The majority of this new space is located in Frankfurt, where almost 53,000 sqm is available. Berlin has the smallest available supply with only around 15,000 sqm. “The generally good market conditions combined with the rising interest in new space has resulted in some project developments being brought forward. For 2017, we currently expect to see the completions volume increase from 800,000 sqm to a little over 1 million sqm,” said Tschammler. Helge Scheunemann, Head of Research at JLL Germany, added: “The proportion of unallocated (speculative) space in 2016 remained relatively stable at around a third.” Given the higher completions volume expected for 2017, this proportion has also increased and now lies at about 40% (413,000 sqm). “Tenants wishing to move now have a slightly bigger choice of modern and well-equipped new space, but in our view this will not develop into a worrying volume of vacant space with a corresponding negative effect on rental price development. On the contrary, by end-2017 we expect to see a further slight drop in the vacancy rate by up to 0.3 percentage points. This is also assuming that take-up by tenants with expansion strategies remains at a consistently high level,” said Scheunemann. Rents with further potential for growth The positive performance of the office property markets in the Big 7 combined with strong demand from office users has caused both prime and average rental prices to rise. Compared to the previous year, the prime rent increased in all of the seven property strongholds except Cologne, where it remained unchanged. Growth rates ranged between 2% in Düsseldorf and Hamburg and 13% in Berlin. As a result, the prime rental price index for the Big 7 reached its highest level since the first quarter of 2002 with almost 187 points. The 4.6% increase compared to 2015 also represents the strongest rise since 2007. “Rental prices remain under pressure in view of the slightly elevated but still moderate construction pipeline. In 2017, rents in the prime segment could increase by 3%,” said Tschammler. Average rents are also expected to increase further. The relevant index, which rose by 4.3% in 2016, is expected to demonstrate a slightly higher percentage increase than prime rents.
Member of the Management Board JLL Germany
+49 (0) 69 2003 1110
Head of Research JLL Germany
+49 (0) 40 350011 225