In 2024, take-up in the top 6 office letting markets was 5% higher than in the previous year, but 24% below the 10-year average
- Take-up: Take-up in the top 6 office letting markets amounted to 2.3 million m² in 2024, up 5% year-on-year but 24% below the 10-year average
- Rental development: Prime rents rose by 2.2% compared to the previous quarter. Average rents rose by 1.9%.
- Vacancy: The vacancy rate increased by 20 basis points compared to Q3 2024, reaching 6.5% on average for the top 6 cities
- Outlook: Many companies are likely to continue to postpone their move due to economic uncertainty. As soon as this dissolves, this should stimulate the office rental market. It is expected that take-up in 2025 will be slightly above the level of the previous year. The vacancy rate is likely to continue to rise. Growth is also expected in prime rents, albeit at a slower pace.
With take-up of 2.3 million m² in the top 6 office rental markets*, the previous year's result was exceeded by 5%. However, take-up was 24% below the average of the last ten years. Take-up in the public sector rose by 39% compared to the previous year, while that of all other players rose by only 2.1%. Jan-Niklas Rotberg, Head of Office Agency Germany at Savills, comments: "While the public sector has become more active again, private companies continue to be cautious. For them, the economic situation in particular continues to inhibit their willingness to move. Instead, they often renew their leases, provided that location, space and building quality continue to meet the minimum requirements."
High subsidised pre-letting rates complicate project developments
"Moves are usually only attractive if the new office is better than the old one. In most cases, only new buildings or renovated buildings meet the increased requirements. The availability of these areas varies depending on the city," observes Rotberg. For example, the pre-letting rate for projects in Hamburg for 2025 is 90%, while in Düsseldorf only about half of the space is pre-let. Antonia Wecke, Senior Consultant Research, comments: "In the medium to long term, however, the situation on the project developer market could become tense regardless of location. This is because the initiation of new projects has become more difficult, mainly due to more restrictive project financing. Many banks often require higher pre-letting rates than before the wave of insolvencies, often at least 50%. At the same time, pre-letting is more difficult to achieve because there is less demand for large space. Therefore, several medium-sized or smaller tenants are needed. However, as the size of the space decreases, the willingness to commit to a space at an early stage tends to decrease, which in turn makes it more difficult to pre-let and start the project." In the past twelve months, only 24 spaces with more than 10,000 m² were let in the top 6 cities, which is below the ten-year average of 35 deals.
Rents are rising, but increasing vacancies are exerting pressure
"In addition, tenants are more hesitant about high rents due to increasing cost sensitivity, which makes the (pre-)letting of new construction space even more difficult. The higher prices per square metre are usually only accepted if a move is accompanied by a reduction in space," explains Rotberg. Compared to the previous quarter, the prime rent rose by an average of 2.2% in the top 6 cities. Average rents rose by 1.9%. However, against the backdrop of the expansion of supply due to rising vacancies, rents are likely to come under pressure in the future. This is because the vacancy rate of the top 6 cities rose by 20 basis points to 6.5% compared to the third quarter.
Tenants demand flexibility – owners are willing to negotiate
Rotberg observes: "The intensified competition among landlords due to the rising vacancies also leads to a greater willingness to negotiate. Many tenants are demanding more flexibility, such as shorter terms, annual termination options or option rights for renting or leasing space. Because of the uncertain economic situation and the shift to hybrid work, companies want to be able to react more quickly to changes in the future. And although the requirements are difficult for many landlords to implement, they are at least more willing to negotiate than in the past due to the decline in demand."
Outlook: Users willing to move, but only if the economic situation is stable
Antonia Wecke classifies: "In the meantime, more and more companies seem to have recognized their needs in the hybrid working world and want to adapt their space to modern workplace concepts. While higher prices per square metre may be offset by a reduction in space, the process is complex and the one-off costs, such as for a needs analysis or for equipment, are high. Many moves have therefore been postponed, and this is likely to continue as long as the economic uncertainties exist." Jan-Niklas Rotberg looks ahead: "However, as soon as the economic uncertainties dissipate, the office leasing market is likely to gain momentum. At the same time, demand is likely to shift further towards high-quality space, which could make it (even) scarcer. This is because the vicious circle of high pre-letting quotas demanded by banks, which are more difficult to fulfill, is likely to lead to a declining project pipeline. Financially strong developers and courageous investors could take advantage of this gap."
* Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne and Munich
All facts and figures in the current Markets in Minutes:
While the public sector has become more active again, private companies continue to be cautious. For them, the economic situation in particular continues to inhibit their willingness to move. Instead, they often extend their leases if the location, space and building quality continue to meet the minimum requirements.
