Berlin Office MarketView Q2 213 GDP Q1 GER +.1% Q-o-Q GDP Q4 GER -.6% Q-o-Q IFO BUSINESS CLIMATE INDEX 1.9 June 213 CBRE Global Research and Consulting GFK CONSUMER CLIMATE INDEX 6. June 213 UR BER 11.6% June 213 OVERVIEW Quick Stats Q2 213 Q-o-Q Take-up 133, sq m Vacancy 1.6m sq m Prime rent 22. /sq m Prime yield 4.9% Completions 4,3 sq m Economy The economy of Berlin is continuing to grow robustly. According to estimates by the Investitionsbank Berlin (IBB), a 1.6% increase in economic performance can be expected over the whole of 213. The forecast for Berlin is therefore distinctly better than that for Germany as a whole, which is expected to grow by only.%. There is a continuing trend of increasing employment in the city. In April 213, around 1.22m people were registered for social insurance in Berlin. This is a year-on-year increase of 2.7%, the fastest growth in employment in the Federal Republic. The unemployment rate has fallen to 11.6%,.4 %-points lower year-on-year. Office market Letting gained momentum in the second quarter, although it is still lower than the previous year. In the first half-year, the total take-up in the Berlin office market was around 219, sq m, which is 14% lower year-on-year. At the end of the second quarter there was around 1.6m sq m of office vacancy, 2% lower year-on-year. Based on a total office stock of around 17.9m sq m, this is a vacancy rate of 8.8%. Following a slight rise at the start of the year, the prime rent was stable at 22. /sq m/month in the second quarter. 1 Hot Topics Letting dynamics have improved, although still below the level of the previous year Dynamic trend in the small and medium-sized letting segments, largescale lettings still scarce Office vacancy below the previous year s level Prime rent stable at 22. /sq m/month Investment market The Berlin commercial property investment market experienced a very dynamic trend in the first half-year. Total transaction volume was around 1.3bn, a 36% increase year-on-year. The asset class most frequently traded was office property, which accounted for around 7% of the investment volume. The second-strongest asset class was retail property, with around 33% of the total. High demand for office property, coupled with the shortage of supply in this segment, has resulted in the prime yield declining by 1 basis points, to 4.9%. Table 1: Office market key data Q2 212 Q2 213 Y-o-Y Stock, million sq m 17.78 17.8 +.4% Take-up, cum. 1, sq m 26. 219. 14.% Vacancy, million sq m 1.6 1.6 2.% Vacancy rate, % 9. 8.76.2%-Pts. Prime rent, /sq m/month 22. 22. + 2.3% Prime yield, %.1 4.9.2%-Pts. Capital value index (Q1 1986 = 1) 192 24 + 6.3% 213, CBRE GmbH
1, sq m % 1, sq m Q2 213 Berlin Office MarketView TAKE-UP After a weak first quarter, the Berlin office letting market saw a more dynamic trend in the second quarter: at the half-year cumulative turnover was around 219, sq m. Although this was a decline of around 14% year-on-year, the ten-year average take-up was nevertheless exceeded by around 4% in the first half-year. Over 11% of the take-up in the first half-year was attributable to owner-occupier transactions, in particular the largest transaction so far this year, as Deutsche Rentenversicherung Bund constructed a new 2, sq m building in the City-West submarket. Apart from this, however, large-scale transactions were still underrepresented: only one other transaction in excess of, sq m was registered. One reason for this is that major decisions to take up space are often subject to delay by the companies concerned. In addition, companies in Berlin often have no attractive alternatives to their present locations, because large, modern accommodation available to let is very scarce on the Berlin office market. However, in the next few quarters the large-scale letting segment could become more active, as lease negotiations on a range of new lettings are already well advanced. The leaders of the league table of take-up by submarket were once again the City-East and City-West submarkets, each accounting for around 37% of the total take-up. The AAA City-East submarket was in third place, with around 8% of the total transaction volume, making it the prime location with the highest take-up. In the wake of the large-scale owner-occupier transaction by Deutsche Rentenversicherung Bund mentioned above, the Insurance industry was the business sector with the highest take-up, around 12% of the total, in the first half-year. The five sectors with the largest take-up also included New Media/Internet (9%), Legal Advisor/Chartered Accountant (7%), Health/Social (6%) and Transport/Traffic (6%). Chart 1: 6 4 3 2 1 Office space take-up Chart 2: Office space take-up (cumulated, %) by sectors* - Top - Remaining sectors 1 year average: 477,8 sq m 24 2 26 27 28 29 21 211 212 213 Q1 Q2 Q3 Q4 Insurance New Media, Internet Legal Adv., Chart. Acc. Health, Social Transport, Traffic 2 VACANCY The volume of vacant office space, which has declined by around 2% in the last 12 months, is now 1.6m sq m. The decrease is due to the above-average letting take-up last year, as well as the various conversions of office space to hotel or residential use. The ratio of pre-let accommodation in office projects is now also very high, so that only a small amount of new space is coming on to the market speculatively. Berlin s office stock has increased slightly yearon-year, rising to 17.8m sq m. The vacancy rate is therefore 8.8%. In an analysis of the submarkets, the substantial increase (over 6%) in vacancy in the prime (AAA) location Potsdamer Platz/Leipziger Platz is particularly striking. In the wake of the imminent relocation of the Mercedes-Benz distribution centre in the City-East submarket, in the next few months the available office stock there will be substantially increased, which will have a corresponding effect on vacancy. *in total 2 sectors Chart 3: Office space vacancy 1.7 1.7 1.6 1.6 1. 1. 1.4 1.4 1, 1 year average: 9.4% 1, 9, 9, 8, 8, 7, 7, 6, 6, 24 2 26 27 28 29 21 211 212 Q2 213 Vacancy Vacancy rate 213, CBRE GmbH
1, sq m Index Q1 1986 = 1 /sq m/month Chart 4: Prime rent/ Weighted average rent 2 2 1 1 24 2 26 27 28 29 21 211 212 Q2 213 Prime rent Weighted average rent Chart : Rent index 3 2 RENT Following a slight increase in the achievable prime rent for first-class office space at the start of the year, in the second quarter it remained stable at 22. /sq m/month. This is around 2% higher year-on-year. The prime rent is achievable in the prime location AAA City-East. Other submarkets showing year-on-year increases in the higher level of rents include AAA City-West (up 3%), City-West (31%), Central Station/Europacity (8%) and Berlin East (up 2%). The primary drivers of this are lettings in newlyconstructed buildings and project developments at correspondingly higher rental values. In the last twelve months the weighted average rent has also followed a stable to slightly rising trend. At the end of the second quarter it was 12.83 /sq m/month: around 1% higher year-on-year. There are differing trends between the various submarkets. While average rental values in the AAA City-West, AAA Potsdamer Platz/Leipziger Platz and City-East submarkets each rose by around %, rents declined in the AAA City-East, City-West, Berlin East and Berlin South submarkets. The largest year-on-year decline, 1%, was registered in City-West. The main reason for this is that, in contrast to the previous year, large-scale lettings took place in less prominent submarket locations, at correspondingly lower rental values. The calculated average rent in the North submarket was roughly the same as in the previous year. Q2 213 Berlin Office MarketView 2 1 1 Following the increase in prime rent at the start of the year, the CBRE Rental Value Index for Berlin, currently 2 index points, is around 4% higher year-on-year. The weighted rental value index for Germany, currently 29 index points, is up 1% y-o-y. PIPELINE 3 1997 1998 1999 2 21 22 23 24 2 26 27 28 29 21 211 212 213 Germany Berlin Chart 6: Office space future supply 3 2 2 1 year average: 19,2 sq m 1 1 24 2 26 27 28 29 21 211 212 213 214 21 Construction of new office space in Berlin continues to be restrained. In the first half of 213, cumulative completions totalled around 66,4 sq m. In comparison: the ten-year average volume of completions in the first half-year is around 82,1 sq m. Completions included the around 26, sq m Mercedes-Benz distribution centre in the City- East submarket. Around 86% of the office space that came freshly on to the market in the first half-year was either prelet or owner-occupied. Only around 14% of the newlycompleted space was therefore available on the letting market. No substantial increase in speculative development activity appears to be in the offing up to the end of 21. Completions in the remainder of 213 are estimated to total around 1, sq m, over 82% of which is pre-let. Around 194, sq m of new and refurbished office space is expected in 214, of which about 22% is speculative. Based on current information, around 229, sq m of new space will come on to the market in 21. The speculative proportion of this is currently around 13%. Around 88% of all office space projected by the end of 21 is already under construction. 3 Completed Speculative Pre-let Owner-occupied 213, CBRE GmbH
Index Q1 1986 = 1 % 1, sq m Q2 213 Berlin Office MarketView PIPELINE BY SUBMARKETS The majority of the office completions by the end of 21 are expected to be in the City-East submarket. 233, sq m, around 44% of all planned space, is in this submarket. Less than 1% of this is speculative. Around 98% of this space is currently under construction. It includes the Palais am Deutschen Theater, which is about to be completed, and the Hotel & Office Campus. The Central Station/Europacity submarket continues to be another centre of project development activity in Berlin. Around 167, sq m of new office space is expected to be completed there in the next two-and-a-half years, which is almost 32% of the total volume of completions in Berlin. About 16% of the space will be speculatively developed. The vast majority (69%) of the planned space is already under construction. In the next couple of quarters this proportion will probably increase, as construction of a number of additional projects is about to start. Around 13% of the volume of development projects in Berlin is in the City-West submarket, on the present basis around 16% of which is being speculatively developed. Nearly all the projects there are currently under construction. The projected volume of completions in the prime AAA locations is relatively small, because of the limited availability of development land. Chart 7: Office space future supply (Q3 213-21) by submarkets* -Top - 2 2 1 1 Chart 8: 2 City-East Central Station / City-West AAA City-East East Europacity Speculative Pre-let Owner-occupier Prime yield, capital value and benchmark yields *in total 1 submarkets 6 2 INVESTMENT Around 1.3 bn was invested in the Berlin commercial property investment market in the first half-year. The transaction volume was therefore around 38m (36%) higher than in the same period in the previous year. Almost half the investment turnover was attributable to transactions of 1m and above. At the start of the year, the office and retail buildings N 19 Kudamm and HumboldtHafenEins changed hands. Disposals in the second quarter included the premium Lindencorso building, in the prime Berlin location Unter den Linden/Friedrichstrasse, and the sale of the Hallen am Borsigturm shopping centre. 1 1 24 2 26 27 28 29 21 211 212 Q2 213 Capital value index Prime yield (%) 1y government bond (%) Office property accounted for 764m in the first six months, at 7% the highest proportion of total transaction volume, as in the previous year. Retail property, at 42m, accounted for around 34% of the investment volume. 78m (6%) was invested in hotel properties and 1m (4%) in development sites. The major groups of purchasers in the first half-year were Open-end real estate funds/special funds, with 38%, and Insurance companies/pension funds, with 27%. The net initial yield on first-class office properties in prime locations in the Berlin market fell by.1 %-points on the previous quarter to its current 4.9%, as a result of high demand coupled with the shortage of supply. In view of the range of attractive properties that are in the pipeline, brisk market conditions could well continue in the next few months. 4 3 2 1 4 FORECAST Even though the first quarter was a rather under average start to the new year for the Berlin office market, we are convinced that take-up will accelerate in the next quarters due to good economic framework conditions in Berlin as well as some larger deals which are already being negotiated. With regard to office space vacancy, we expect a continuing positive development. A further increasing prime rent is currently not forecast. 213, CBRE GmbH
Table 2: Submarket key data Cumulated Take-up sq m Future supply Q2 213 21 sq m Vacancy volume sq m Rental band /sq m/month Weighted average rent /sq m/month AAA City-East 16, 23,7 69,9 14. 22. 17.64 AAA City-West 4,8,6 7, 13. 19. 16.62 AAA Potsdamer Platz/Leipziger Platz 9,9 6, 76,9 14. 22. 18.1 City-East 81,8 233,2 296,7 7. 19. 12.6 City-West 8, 67,6 426,4 8. 19. 11.3 Central Station/Europacity 167,1 17. 2. n/a North 8,8 17,6. 9. 6.86 East 8,4 12,2 24,. 12. 7.44 South 7,8 119,2. 9. 7.24 West 1, 12,2 96,3. 9. n/a TOTAL 219, 28,1 1,63,. 22. 12.83 Q2 213 Berlin Office MarketView 213, CBRE GmbH
Q2 213 Berlin Office MarketView For more information about this MarketView, please contact: Research Germany Dr. Jan Linsin Senior Director Head of Research Germany CBRE Bockenheimer Landstr. 24 6323 Frankfurt t: +49 69 1777 663 e: jan.linsin@cbre.com Sascha von Brunkau Analyst CBRE Hausvogteiplatz 1 1117 Berlin t: +49 3 72614 131 e: sascha.vonbrunkau@cbre.com Agency Berlin Matthias Hauff Managing Director Head of Agency Berlin CBRE Hausvogteiplatz 1 1117 Berlin t: +49 3 72614 e: matthias.hauff@cbre.com + FOLLOW US GOOGLE+ FACEBOOK TWITTER: @cbregermany Global Research and Consulting This report was prepared by the CBRE Germany Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. 6 Disclaimer Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE GmbH clients, and cannot be reproduced without prior written permission of CBRE GmbH. www.cbre.de 213, CBRE GmbH