City Survey

Q4 2023

Chapter 3Leasing Market

3.1Lack of economic stimulus slows down office market – recovery not until mid-2024 at the earliest

In Germany’s seven largest office leasing markets, around 2.4 million square metres of office space were taken up in 2024.This was the weakest result in the last 10 years and was around 28 percent below the previous year’s result. The slight upturn in the third quarter of 2023 continued in the fourth quarter of 2023, but without gaining significant momentum. Between October and December, around 653,000 square metres of space was taken up, around 13,000 square metres more than in the previous quarter (+ 2 per cent). 

2.4
m. sqm.
Take-up in 2023

In the fourth quarter of the year, the office market continues to face headwinds from the gloomy economic situation, the ongoing realignment of office concepts in the wake of ‘new work’ and a high number of geopolitical conflicts. Large companies, in particular, continue to be noticeably reluctant to make strategic decisions in this environment.

In the space segment over 5,000 square meters, only 59 deals were registered in 2023, compared to 97 deals in the previous year. Take-up in this segment was around 56 percent below the previous year’s level.

Office Space Take-up in the TOP 7 (in million sqm)

Forecast from 2024

Average Rents in the TOP 7 in €/sqm

Prime rents continue to defy the rise in vacancies

The vacancy rate rose again in the fourth quarter and currently stands at 6.1 percent in the top 7 (+40 basis points compared to the previous quarter). Compared to the previous year, this represents an increase of 100 basis points, or almost 1 million square meters. At around 220,000 square metres, sublet space has made a disproportionate contribution to this increase. Their share of total vacancies rose from 10 percent in the previous year to over 12 percent today. Overall, the vacancy rate in the top 7 locations has risen by around 3 million square metres since the low point in 2019.

 

Despite some halted construction projects as a result of insolvencies, around 1.9 million square metres of new office space were brought onto the market in 2023. For 2024, more than 2 million square meters are expected. From 2025 onwards, there are signs of a slump in new construction activity as a result of the changed framework conditions. According to current forecasts, less than 1.5 million square meters of new office space will come onto the market in 2025, with a further decline in volume in 2026. 

Unimpressed by the increase in vacancies, prime rents continued their upward trend in all top 7 locations. At the top in 2024 were Dusseldorf (+ 16 percent compared to the previous year) and Cologne (+ 15 percent), followed by Munich (+ 10 percent). In terms of average rents, the development is more heterogeneous, with significant growth in Dusseldorf and Cologne and stagnation or slight declines in the other five locations.

6.1
percent
vacancy rate in the Top 7

Construction activity in the top 7 continues to be at a high level. These state-of-the-art spaces are in high demand among occupiers with high requirements for ESG standards and property quality and can thus achieve new prime rents in many markets.

On the other hand, obsolescence and rental risks are becoming increasingly important for older existing properties as a result of increasing investment requirements. From 2025 onwards, we expect an increasing shortage of modern office space in central locations due to the slump in new construction, and in 2026 a peak in the vacancy trend in the overall market.

Completions of Office Properties in the TOP 7 (in total in 1.000 sqm)

Forecast from 2024

Vacancy Rate in the TOP 7 in %

Outlook: Positive economic stimulus from mid-2024, structural headwinds remain

The German economy is expected to have contracted by 0.3 percent in 2023 as a whole, and the leading indicators do not suggest a short-term recovery. After three consecutive increases, the ifo Business Climate Index fell slightly again in December and, at 86.4 points, still does not signal an upswing. The consensus forecast currently expects slight economic growth of 0.3 percent for 2024. “The gloomy economic environment is also slowing down the office leasing market in Germany at the beginning of 2024. In view of the relevant leading indicators and forecasts, we do not expect positive impetus for the rental market until mid-2024 at the earliest.

The realignment of office concepts in the context of home office ratios that have now stabilised will continue to create a structural headwind for the office leasing market in the medium term. A return to take-up from the pre-coronavirus years is therefore not to be expected in the short term, even if the economic environment brightens.

For 2024, we believe that take-up of up to 2.7 million square metres is possible, an increase of 12 per cent compared to 2023.

Office leasing market data

BerlinDusseldorfFrankfurtHamburgCologneMunichStuttgart
Take-up 2023
in sqm
530,000245,000366,800452,500201,000474,850156,500
Take-up 2022
in sqm
760,000280,000376,800592,200316,000754,500302,200
Change year-on-year
in %
-30.3%-12.5%-2.7%-23.6%-36.4%-37.1%-48.2%
Prime Rent 2023
in €/sqm
44.5040.0047.0034.5034.0048.0035.00
Prime Rent 2022
in €/sqm
43.3034.5046,0032.5029.5043.0033.00
Change year-on-year
in %
2.8%15.9%2.2%6.2%15.3%10.3%6.1%
Average Rent 2023
in €/sqm
29.0021.2022.8020.9019.3023.8519.50
Average Rent 2022
in €/sqm
29.7018.5023.5020.9016.7024.2018.10
Change year-on-year
in %
-2.4%8.7%-3.0%15.6%-1.5%-4.4%
Vacant Office Space
2024 in sqm
1,288,700647,0001,109,600523,300239,8001,594,700432,200
Vacant Office Space
2022 in sqm
803,500624,4001,040,900551,100215,0001,231,100364,200
Vacancy Rate
2023 in %
5.7%8.1%9.6%3.7 %2.9%6.9%5.1%

Data as of Q4 2023

3.2Upturn in the industrial and logistics real estate market continues in the fourth quarter

At the end of 2023, Germany’s TOP 8 industrial and logistics real estate markets generated take-up of around 2.2 million square metres. This represents a decrease of 33 percent compared to the previous year. The five-year average was missed by around 29 percent.

The upturn in demand in the industrial and logistics real estate market, which we already observed in the third quarter, continued in the fourth quarter. In the second half of the year, an increase in deals in the large-volume segment was observed.

2.2
m. sqm.
Take-up Top 8

Large-scale leases boost take-up in 4 of the top 8 logistics regions

All of Germany’s top 8 industrial and logistics regions posted a yoy drop in take-up with the exception of Frankfurt. Q3 was nevertheless the strongest quarter by far in the Berlin, Frankfurt, Cologne and Stuttgart logistics regions. Although take-up was down yoy in most regions, 5 of Germany’s top 8 logistics regions saw a return to 2019/2020 levels.

Tenants interest primarily revolved around the small-space segment of up to 3,000 sqm in the first nine months of 2023 with roughly two-thirds of all leases signed in this segment. Locations such as Berlin, Frankfurt and Hamburg, which have been characterized by large-scale leases in the past due to their occupier structure, saw a number of leases signed for over 10,000 sqm in Q3. Four out of the six leases signed for over 10,000 sqm in Frankfurt were signed in Q3 compared with two out of three in Berlin. It is also worth noting that we saw leases being signed again for over 20,000 sqm. The largest owner-occupier deal was signed in Q3 in the Stuttgart logistics region, where Breuninger is expanding its warehouse by 40,000 sqm. The 10 largest leases signed accounted for around 22% of total take-up combined.

Although trading companies have traditionally been the strongest user group, logistics service providers had taken their spot by the end of Q3 with 31% of total take-up. The production and manufacturing sector followed a close second at 30%. Trading companies accounted for around 26% of total take-up.

The economic situation, coupled with a change in consumer behaviour, led to a large number of sublet spaces coming onto the market in the first half of the year. E-commerce companies, in particular, had to adjust their expansion plans and give up space, which was quickly absorbed by the market.

Due to the slight recession, it is also difficult for industrial companies and contract logistics companies to correctly assess their space requirements. On the other hand, however, there are still very low vacancy rates and an undersupply of space in many areas. These factors have a negative impact on take-up.

Large-volume deals in the second half of the year boost take-up

The highest take-up of space was recorded in the Frankfurt logistics region with 435,400 square metres. With an increase of 9 percent compared to the previous year, Frankfurt is the only TOP 8 location that was able to record positive take-up growth. This is mainly due to a number of sublettings in the region in the first half of the year, which accounted for around 13 percent of total take-up.

In 2023, the focus of users was primarily on the small-scale space segment of up to 3,000 square metres. This segment accounted for around two-thirds of all deals, but it was only responsible for 21 percent of take-up. In the fourth quarter, a number of large-volume deals were again registered, so that a total of 9 percent of the deals were made over 10,000 square meters, of which two-thirds were even over 20,000 square meters.

In the first half of the year, only 13 percent of all deals over 10,000 square meters took place in properties that had not yet been completed at the time of letting. In the second half of the year, on the other hand, we were able to register more deals in new construction developments. Pre-lettings accounted for around a quarter of these deals. This indicates that the demand is still there.

The largest letting in 2023, both within the TOP 8 locations and in relation to the entire market, took place in the Leipzig logistics region, where a company from the automotive sector leased an 80,000 square meter logistics hall. The largest leasing deal of the fourth quarter was also the third largest of 2023 and took place in the logistics region of Cologne. In the Frechen submarket, a trading company rented an existing hall of around 34,300 square metres. It is also noteworthy that the largest owner-occupier deal took place in the logistics region of Stuttgart, which had recorded the lowest owner-occupier rate in the past due to the prevailing shortage of space. There, Breuninger is expanding its existing hall by 40,000 square meters.

In the past, retail companies were the strongest user group, but in 2023 they were replaced by logistics service providers with a share of 33 percent of total take-up. This is closely followed by companies from the manufacturing industry with 28 percent. At the end of the year, retail companies accounted for around 28 percent of total take-up.

The year 2023 was marked by a shift in demand. Retail companies have been hesitant and in some cases have even returned space to the market. While their share was 38 percent in the first quarter, it was only 26 percent at the end of 2023. Overall, however, we see a healthy mix of demand in the market as well as unbroken demand for logistics properties. In particular, users from the energy and automotive sectors are increasingly demanding space for the storage of batteries.

Rents reach new record highs

Compared to the previous year, the TOP 8 logistics regions recorded an average rental growth of 9 percent for prime rents and 12 percent for average rents. This shows that existing rents in particular continue to be under upward pressure due to the prevailing shortage of space in the TOP 8 regions. 

12
percent
year-on-year increase in average rent

We expect low vacancy rates, a still manageable supply and an overall decline in the number of new construction projects to continue to support the upward pressure on rents. However, we expect rental growth to slow in the second half of the year.

In addition, we see that more and more users are moving to the surrounding areas due to the shortage of space, which is leading to new rental growth potential in peripheral locations. We have a positive outlook for the new year and expect the market recovery to continue.

Industrial and logistics leasing market data

Top 8Berlin /
Brandenburg
DusseldorfFrankfurt /
Rhine-Main
HamburgCologneLeipzigMunichStuttgart
Take-up
2023 in qm
2,149,100362,000235,100435,400306,400177,400274,200150,900207,700
Change year-
on-year in %
-33%-52%-4%9%-41%-42%-37%-26 % -38 %
Leasing take-
up 2023
in qm
1,934,900350,300210,100416,000237,900168,600237,400150,900163,700
Change year-
on-year in %
-51%12%4%-35%-44%-38%-13%-51%
Forecast for
take-up end
of year 2023
Number
of deals
51310350988137326052
Average size
per deal
4.1893.5154.7024.4433.7834.7958.5692.5153.994
Most important
sector
Logistics
service
providers
Logistics
service
providers
Logistics
service
providers
Retailers &
Manufacturing
sector
Logistics
service
providers
RetailersManufacturing
sector
Manufacturing
sector
Retailers
Prime rent
in EUR/qm
7.907.908.008.007.705.809.308.30
Forecast 
end of
year 2024
Average rent
in EUR/qm
7.006.506.406.406.005.308.407.00
Forecast 
end of
year 2024

Data as of Q4 2023

Chapter 4 Investment market