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25 March 2020, Germany | News

Catella Office Market Map Germany 2020

The economic phase that lies ahead of us will undoubtedly become more volatile and recessive, and analysts will again discuss the "V", "U" or "L" formations that pictorially describe this economic environment in the coming weeks. We also like to work with pictures and have therefore analysed the German office property markets again in our Office Market Map 2020. 

The variables prime rents and prime yields as well as the respective 6-month trend provide a very detailed picture of the current state of the office markets and an optimal overview of the competitive conditions of the 76 markets examined. Serious forecasts on future developments are methodologically impossible, but it is clear that the economic implications of Covid-19 will also affect the office markets in the further course of the year, despite the inertia of the markets. In the more volatile top office markets in particular, we continue to see a constant level of top rents and yields over the next six months, although in the best-case scenario, significantly higher activity is expected again in the third and fourth quarters. 

Here are some further facts:

  • The strongest increase in rents over the past 12 months was not at the 7 A locations with +7.2% to an average of €33.29 per sqm but at the D locations with a strong +8.3% to currently €11.35 per sqm, which thus exceeded the €11 mark on average for the first time.
  • Very positive growth rates are also recorded at the 30 C locations. On average the top rent increased by +5.6% to €14.10 per sqm.
  • The lowest rent increases this year were thus recorded at the 14 B locations with +3.1%. Although the average prime rent is now €16.02 per sqm, the absolute difference between the C locations has shrunk to less than €2.00 per sqm. In Leipzig and Hanover, on the other hand, almost double-digit growth rates were recorded.
  • The front-runner in office rents is currently Frankfurt with €45.00 per sqm - we see the lowest value in Gera in Thuringia with currently €7.50 per sqm, followed by Salzgitter with €8.00 per sqm.
  • As expected, the average prime yield in the 7 A locations has now fallen below the 3% threshold and currently stands at 2.88%, which corresponds to a decline of 18 basis points compared with the previous year. Nevertheless, the strong yield compression of previous years has flattened out considerably as investors are becoming more selective and rational and are also considering other risk classes (Core+, Value-Add).
  • The demand for office investments can also be seen even more clearly with regard to the remaining location categories: as in the previous year, the sharpest drop in yields within Germany was recorded at the 26 D locations in total. It fell by an average of 50 basis points to 6.20%. In 2017, this location category still recorded the smallest yield movement.
  • Yield compression at the B and C locations has occurred without major differences over the past 12 months (-40 bp at the B locations and -31 bp at the C locations). At the same time, the yield spread has not narrowed any further as a result and currently stands at 92 basis points (83 basis points in the previous year). Investors are proceeding here with a balanced risk-return understanding and are relying on a sustainable cash flow for their investment.
  • The lowest gross yields are currently to be found in Berlin and Munich with 2.60% each, the highest measured value is achieved in Solingen and Wilhelmshaven (7.50%), followed by Siegen (7.20%) and Weimar with 7.10%.

An analysis of the differences between the individual location categories A to D shows that the intervals in the average yields are constantly decreasing and the risk parameters are becoming increasingly mixed, especially at locations from B to D. This offers investors an extremely attractive diversification potential with a broad spectrum of property and location-specific risk factors.

 

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