German office real estate rental markets are on the up. That is the core statement of IVG Immobilien AG and Cushman & Wakefield Healey & Baker's real estate barometer for the second quarter of 2005. In the second quarter, a total of 590,000 m² were let in the five largest German office markets, 26% more than in the first quarter, when rental contracts for 468,000 m² were concluded.
IVG Real Estate Charts Europe - Office markets 2nd quarter 2005 (compared with previous year)
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While vacancy rates fell in Dusseldorf and Berlin compared to the first quarter of 2005, they stabilised in Frankfurt, Hamburg and Munich. "A high percentage of rental turnovers in Germany are still being generated through the exchange of office space. A noticeable reduction in vacancy rates will only set in when new jobs are created and economic growth takes off. Investments in Germany should therefore be made as and when required and focus on tailor-made products in the right location," is how Bernd Kottmann, Member of the Board of Management responsible for portfolio management at IVG, analyses the recovery trends in the German real estate market. The top
and average rents remained constant in all the five surveyed cities compared to March. "The figures show that the German real estate markets remain tenant markets, although this trend is starting to weaken," comments Kottmann.
Yields have continued to fall in the investment market, and real estate values have risen accordingly. Compared to the first quarter, the prime yields for high-quality European real estate fell slightly by 0.2% to a current value of 5.7% (second quarter 2004: 6.1%). Average yields also decreased marginally in the second quarter, falling by 0.3% to 6.5% (second quarter 2004: 6.9%).
Rental turnovers uneven
The rental markets in the other Western and Central European markets displayed considerable differences in the second quarter. While significantly more lets were concluded in Barcelona, Paris and Prague, rental turnovers fell in Amsterdam, Brussels and Warsaw. Overall, in the second quarter of 2005, 2.1 million m² were leased in the 21 cities monitored by IVG and CWHB, compared to 1.82 million m² in the first quarter of the year an increase of a full 15%.
The comparative quarterly figures illustrate dynamics of the German office markets: With a turnover of 146,000 m², Frankfurt, although trailing Paris (511,000) and Madrid (150,000), overtook London (144,000) in the second quarter of 2005. Munich (138,000) occupies fourth place just behind London in the list of the most active European office markets. Of the important locations, only Dusseldorf, with 63,000 m², came in well below average.
In terms of rental turnovers for the half-year, German cities are displaying the fastest growth rates behind Paris, Madrid and London. With turnovers up 96%, Frankfurt recorded the highest growth rates in the first six months of this year compared to the first half of 2004. 241,500 m² have been let in the city since the beginning of the year. In Berlin, rental turnovers increased by 41% to 233,000, in Munich they rose by 30% to 279,000 and in Hamburg they were up by 21% to 205,000 m².
Vacancy rates down slightly
Average vacancy rates in Europe declined further to 9.5% (first quarter 2005: 9.9%). Vacancy rates fell significantly in the major Central European cities, falling from 13.4% to 12.7%. In the Western European locations, vacancy rates dropped slightly from 9.5% to 9.1%. The most significant drops in vacancy rates were recorded in Dusseldorf (14.5% to 11.7%), Madrid (9.1% to 8.5%) and Paris (6.3% to 5.3%).
Prime rents remain constant
Prime rents remained stable, falling slightly by 0.1% compared to the first quarter of 2005, and by 0.9% compared to the comparable prior-year period. At 106.25, London continued to generate the highest rent per square metre. Compared to the first quarter of 2005, the top value rose by 1.8%. The largest
