MARKET REPORT /2018 Accelerating success. Office and Investment Market Berlin
Market Overview Office Leasing TOP 7 BERLIN DÜSSELDORF FRANKFURT HAMBURG COLOGNE MUNICH STUTTGART STOCK OF OFFICE SPACE 90.52 19.50 7.60 11.57 13.75 7.85 22.40 7.85 in million sq m OFFICE SPACE TAKE-UP 4,156,700 937,000 333,000 710,100 622,000 302,000 984,200 268,400 in sq m Change year-on-year in % 6 9-9 29 14-20 26-38 OFFICE SPACE TAKE-UP 3,167,900 634,300 331,800 462,700 505,130 261,000 718,400 254,600 (for the entire year) 10-year Ø PRIME RENT 31.30 27.00 41.00 26.00 21.50 35.60 24.30 in /sq m AVERAGE RENT in /sq m 19.15 15.40 20.00 15.40 12.90 17.30 13.40 VACANT OFFICE SPACE in sq m 3,652,800 390,000 532,400 1,104,900 625,000 314,000 535,900 164,600 VACANCY RATE in % 4.1 2.0 7.0 9.6 4.5 4.0 2.4 2.1 Change year-on-year in basis points -80-100 -50-160 -50-100 -60-70 The data for Berlin, Düsseldorf, Hamburg and Cologne are related to the respective city area. The data for Frankfurt, Munich and Stuttgart are related to each of the respective markets on the whole. Investment GERMANY TOP 7 BERLIN DÜSSELDORF FRANKFURT HAMBURG COLOGNE MUNICH STUTTGART TRANSACTION VOLUME 57,289 29,954 7,522 2,740 6,912 3,410 2,000 6,170 1,200 in million Change versus prior year in % 9 4 54 26 13-31 14-10 -37 TRANSACTION VOLUME (for the entire year) 10-year Ø PRIME YIELD OFFICES in % PRIME YIELD HIGHSTREET RETAIL in % PRIME YIELD INDUSTRIAL & LOGISTICS in % 33,667 18,490 4,090 1,538 3,790 2,912 1,110 4,100 950 3.20 3.75 3.30 3.30 4.25 3.20 3.80 3.20 3.50 2.80 3.20 3.50 2.80 3.10 4.65* *) Refers to the defined logistics market areas 2
City Facts BERLIN Population in 1,000 3,688 Employees Paying Social Se cu rity Contributions in 1,000 Fast Facts OFFICE LEASING BERLIN Change vs. prior year Office Space Take-up 937,000 sq m 8.6 % Leasing Take-up 836,800 sq m 11.6 % Prime Rent 31.10/sq m 9.8 % Average Rent 19.15/sq m 17.5 % Vacancy Rate 2.0 % -100 bp* Office Space Stock 19.50 m sq m 3.0 % Achieved Rents BERLIN Price range in / sq m Average rent in /sq m 1 City West 11.30 42.00 22.20 2 City East 10.10 35.00 20.85 3 Potsdamer Platz / Leipziger Platz 17.00 30.40 23.35 4 Central Station 20.00 23.50 21.10 5 Mediaspree 12.50 31.80 27.55 6 City Area West 9.30 30.70 18.30 7 City Area East 8.00 27.50 20.45 8 City Margins North 9.00 26.20 16.45 9 City Margins South 10.00 22.50 19.00 10 Periphery North 6.90 15.30 11.45 11 Periphery West 8.00 29.00 12.10 12 Periphery South 4.80 19.20 12.45 13 Periphery East 5.80 14.00 10.60 14 Adlershof 8.85 16.75 13.20 15 Schönefeld 8.00 12.50 10.70 *) basis points 1,366 Unemployment Rate in % 8.4 Per Capita Disposable Income in 20,800 Office Leasing Take-up Demand for office space in Berlin is at a record-high. Take-up in Germany s capital came to 937,000 sq m in, up around 9% yoy and reaching an all-time high. Spurred by ongoing strong demand, the Berlin office market has once again surpassed all expectations. The fact that office take-up in Berlin again experienced a slight increase reflects the city s growing importance for office occupiers. A number of large-scale leases for over 5,000 sq m, several of which were signed by coworking providers, boosted take-up and accounted for around 40% of total office take-up. The market particularly benefited from an increasing number of large-scale leases signed for more than 10,000 sq m. Nine new leases in this segment accounted for 230,000 sq m combined. Due to the extremely limited supply of stock space, project developments accounted for the lion s share. Examples 5 2 1 115 Spandau 111 11 96 Steglitz-Zehlendorf Reinickendorf 105 6 100 Charlottenburg-Wilmersdorf 96a 10 Mitte 7 8 4 Berlin 2 1 2 5 1 3 103 101 12 10 109 114 11 Pankow 109 Friedrichshain-Kreuzberg 9 Neukölln Tempelhof-Schöneberg 96a 96 2 Lichtenberg 15 14 158 Marzahn-Hellersdorf 13 117 113 1 Treptow-Köpenick 3
include the deals involving a federal agency at Puschkinallee and Deutscher Gewerkschaftsbund at Keithstraße, both owner-occupiers. Demand for office space was strongest among retail companies in. Around 179,300 sq m, or 19% of take-up, can be attributed to the retail and e-commerce sector, followed by public administration. Demand from government and community institutions was almost equally strong at 18%, or 175,700 sq m. In terms of number, IT companies clearly took the lead with almost 200 leases signed. Because companies in this sector tend to lease smaller units, however, they only accounted for 165,000 sq m. The submarkets with the highest take-up volumes were City South and Mediaspree with 160,000 sq m and 122,000 sq m, respectively, thanks to several large-scale leases. Rents Average and prime rents skyrocketed in light of exceptionally high demand for space in CBD locations, up yoy by 15% to 19.15 per sq m (average) and by 9% to 31.30 per sq m (prime). The strongest rental growth yoy at 40% was recorded in the Mediaspree submarket where average rents are currently being asked at 27.50 per sq m. The City West submarket also recorded significant rental growth of 20% to a current average of 18.30 per sq m. Prime rents for new leases in the Upper West office tower located in the CBD West submarket currently run at between 36.00 and 42.00 per sq m. More than one-third of total office take-up within Berlin city limits, or 306,000 sq m, can be attributed to the highest price segment of over 20.00 per sq m with 170 new leases signed in. The high-priced segment of between 17.50 and 20.00 per sq m accounted for almost 109,000 sq m. In light of the significant rental growth in the past year, it does not come as a surprise that not many leases were signed in the lowest price segment of less than 10.00 per sq m. Only 80 new leases were signed for units in this price category, accounting for 53,000 sq m. The price segment of between 10.00 and 12.50 per sq m also saw only 80 new leases signed for a total of 59,000 sq m. Supply and Vacancy Berlin s office market has basically dried up and new developments are much needed with vacancy rate at a critical 2%. This situation is making it increasingly difficult to find suitable space even in the smaller space segment, particularly in popular CBD locations. Demand has been shifting to the surrounding downtown submarkets for some time now. Key Developments By the end of 2018, we expect around 320,700 sq m of office space to be completed, 60% of which has already been preleased. Considerably more space is expected to hit the market in 2019 (around 434,000 sq m), around 50% of which, however, has already been preleased. Office Space Take-up in 1,000 sq m 1,000 900 800 700 600 500 400 300 200 100 0 Completion Volume (in 1,000 sq m) and thereof Pre-let/Owner-occupied 500 400 300 200 100 0 Prime and Average Rents (in /sq m) 22.00 13.00 13.70 15.10 16.30 2013 35 2013 253 Completions Prime Rent 23.00 24.30 2014 40 2014 205 117 thereof Pre-let/Owner-occupied 53 123 519 661 790 740 Leasing Owner-occupiers 321 192 217 2018 Vacancy Rate (in %) and Vacancy (in 1,000 sq m) 1,200 1,000 800 600 400 200 0 6.0% 2013 5.0% 2014 3.7% 3.0% 1,090 925 685 567 28.50 Average Rent 100 837 434 2019 2.0% 390 31.30 19.15 4
The submarkets with the greatest development potential are Alexanderplatz with several high-rises in the pipeline as well as the southern sections around Alexanderstraße/Dircksenstraße and Jannowitzbrücke. New-builds encompassing around 70,000 sq m are currently being developed by OVG, Ludger Inholte and Hines in the Südkreuz submarket. Summary and Outlook The Berlin market lived up to its reputation as a lively, highly attractive market in. Thanks to the German capital s popularity throughout Germany and Europe, the continued increase in take-up can primarily be attributed to the influx of new tenants as well as new businesses, not just to relocations and expansions. The run on Berlin office properties is expected to continue in 2018. The fact that each new year the city manages to outperform the previous year in terms of take-up reflects the growing importance of Berlin as an office hotspot. More and more companies are feeling the pressure to compete for modern office space, which often requires relocating. In light of the extremely scarce supply of prime office space in coveted downtown locations, many large occupiers are considering a move to adjacent peripheral locations. We therefore expect 2018 to again exceed the 900,000 sq m mark. Fast Facts INVESTMENT BERLIN Transaction Volume in million 7,522 4,900 Portfolio Transactions 18 % 25 % Share by International Buyers 66 % 34 % Share by International Sellers 36 % 35 % Most Important Property Type Office: 69 % Office: 61 % Prime Yield Office 3.20 % 3.50 % Commercial Transaction Volume (in million ) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 3,510 2013 4,000 2014 Types of Properties (in %) Mixed Use Building Site (commercial) 1 6 2 Hotel 11 8,100 4,900 Industrial & Logistics 7,522 Investment Transaction Volume The Berlin investment market for commercial real estate closed out with a transaction volume of 7.5 bn, up 54 % yoy. That puts Berlin at the top of all German investment markets. results almost matched s record high of 8.1 bn. The most significant single-asset deal on the market was the sale of Sony Center for roughly 1.1 bn by South Korean sovereign wealth fund NPS to Canadian pension fund OMERS at the end of Q3. High-volume deals in the triple-digit million euro range led the pack with a 55 % share in total transaction volume, with 16 transactions changing hands in this price segment over the course of the year. Other examples besides the Sony Center deal include the West, Axel Springer Headquarters, Axel Springer Passage, Allianz Campus, East Side Mall and Zalando Headquarters. Supply and Demand An extraordinarily successful is proof of how attractive Berlin continues to be among both German and foreign investors. The Berlin investment market saw lively activity throughout all asset classes and locations. Investors poured just shy of 70 % of total transaction volume, or 5.2 bn, into office assets. Thanks to consistently high demand and tremendous rental growth, office properties remain the most sought-after asset class. Retail assets and hotels trailed at some distance with transaction volumes of roughly 860m and 800 m, respectively. Commercial building sites changed hands for more than 450 m. Retail 11 69 Office 5
Asset/fund managers were the strongest investor group buyside, accounting for around 1.76 bn of invested capital and a 23 % market share. Pension funds followed in the ranks due to several large-scale transactions, recording a volume of 1.2 bn, or a 16 % market share. Open-ended real estate funds/special funds invested over 800m. Asset/fund managers also dominated market activity sell-side ( 1.32 bn, 18 %), followed by pension funds (1.17 bn, 16 %) and private investors/family offices ( 960m, 13 %). Foreign investors increasingly focused on the Berlin investment market over the course of the year thanks to the city s growing job market and stable population growth. They accounted for 70 %, or 5.3 bn, of investments in commercial real estate. As Germany s capital, Berlin is considered a safe haven for investments with high rental upside potential. Yields Pressure to invest in caused gross initial yields to drop further, a development reflected in the fact that numerous deals were signed at top prices considerably exceeding vendor expectations. Transaction Volume by Buyer Groups (in million, share in %) Asset managers / Fund managers Pension funds Open-ended real estate funds / Special funds Opportunity funds / Private equity funds Listed property companies Other investors 0 500 1,000 1,500 2,000 2,500 23 % 16 % 11 % 9 % 8 % 33 % Transaction Volume by Seller Groups (in million, share in %) 0 500 1,000 1,500 2,000 2,500 Asset managers / 18 % Fund managers Pension funds 16 % Gross initial yields in the office segment have now reached a low of 3.20 %, putting Berlin at the top of Germany s most expensive real estate markets alongside Munich. As for the logistics market, gross initial yields are currently stable at 4.65 %. Summary and Outlook Activity on the Berlin investment market remained exceptionally lively in. Berlin is one of the most favored investment locations not only in Germany but also in Europe. The German capital continues to be immensely popular among both German and foreign investors. Persistently high transaction volumes reflect Berlin s growing significance among real estate investors. Private investors / Family Offices Property developers Corporates / Owner-occupiers Other investors 13 % 11 % 9 % 33 % The run on Berlin commercial assets is expected to continue in 2018. Since there is no lack of capital, the only limiting factor could be the shortage of supply. In view of the far-reaching economic upswing and rising employment levels, which are fueling the Berlin office leasing market, we can expect 2018 to be an exciting year, once again bringing in a total transaction volume of over 6 bn. Margit Lippold Director Research +49 30 202993-43 margit.lippold@colliers.com 6
Glossary Take-up of Space Take-up of space is the sum of all spaces either newly let, sold to owner-occupiers, or built for or by an owner-occupier within the period under consideration. The salient date is that on which the lease or purchase agreement is signed. The renewal of an existing lease is not counted in the take-up of space. Leasing performance Leasing performance reflects take-up excluding owner-occupied space. Prime Rent The premium rent represents the median of the top 3 % of new lets (not counting owner-occupiers) during the 12 months just ended. Average Rent The average rent is calculated by taking the individual rents agreed to in all new leases, weighting them by the amount of space rented and computing the mean value. Vacancy Vacancy is defined as all office space available for occupation within three months. Prime yields Prime yields are the best return that can be realized for a property of highest quality and in the best location when leased under usual market conditions (highly solvent tenant). The figures here are gross yields. Photo credits Front page Colliers International Berlin GmbH Photo credits inside pages Page 2 Fotolia Page 3 Palais Holler, Kurfürstendamm 170, 10707 Berlin Page 7 istock, william87 7
403 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 86 EMEA: 111 Contact: Margit Lippold Director Research Berlin +49 30 202993-43 margit.lippold@colliers.com Colliers International Berlin GmbH Budapester Straße 50 10787 Berlin +49 30 202993-0 2.3 billion global turnover 95 billion in transaction volume with more than 80,000 investment and leasing deals 170 million sq m under management Over 15,000 professionals About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 15,000 professionals operating from 403 offices in 68 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. For the latest news from Colliers International, visit Colliers.com, or follow us on Twitter: @ColliersIntl and LinkedIn. To see the latest news on Colliers International in Germany follow www.colliers.de. colliers.com Copyright 2018 Colliers International Deutschland GmbH This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s). 2018. All rights reserved.