MAin ReGionAl ReAl estAte markets in Germany 2017 office vAcAncies fAllinG, thAnks to steady DemanD – Rents foR RetAil proPeRties stAbilise At A hiGh level A Research PublicAtion by DG HYP | March 2017 Main regional real estate markets in Germany | 2017 1 Main regional real estate markets in Germany | 2017 Table of ConTenTs Preface ____________________________________________________________________ 2 Widespread growth in office and retail rents is over __________________________ 3 Office properties: Modest rent growth and vacancy rates down sharply Retail properties: prime rents have virtually stopped rising Augsburg __________________________________________________________________ 18 Berlin _____________________________________________________________________ 21 Bremen ____________________________________________________________________ 23 Cologne ____________________________________________________________________ 26 Darmstadt _________________________________________________________________ 28 Dresden ___________________________________________________________________ 31 Düsseldorf _________________________________________________________________ 34 Essen ______________________________________________________________________ 36 Frankfurt __________________________________________________________________ 39 Hamburg __________________________________________________________________ 41 Hannover __________________________________________________________________ 43 Karlsruhe __________________________________________________________________ 46 Leipzig ____________________________________________________________________ 49 Mainz _____________________________________________________________________ 52 Mannheim _________________________________________________________________ 55 Munich ____________________________________________________________________ 58 Münster ___________________________________________________________________ 60 Nuremberg ________________________________________________________________ 63 Stuttgart __________________________________________________________________ 66 Locations at a glance _______________________________________________________ 68 Imprint ____________________________________________________________________ 71 Disclaimer _________________________________________________________________ 71 DG HYP Offices ____________________________________________________________ 72 1 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017 PREFACe As the commercial real estate bank within the volksbanken Raiffeisenbanken cooperative financial network, we have regularly analysed the markets we actively cover for several years, publishing the results in real estate market reports. thanks to strong demand for commercial real estate in Germany, the popularity of regional locations amongst investors has grown significantly over recent years.f or this reason, we regularly publish a study ana­ lysing the main regional real estate markets for office and retail properties in Augsburg, bremen, Darmstadt, Dresden, essen, hanover, karlsruhe, leipzig, Mannheim, Mainz, Mün­ ster and nuremberg, comparing developments there with the top German metropolitan areas. covering a total of 19 markets, with a broad regional diversification, the report thus provides a comprehensive analysis of the German commercial real estate market. in the prosperous market environment that has characterised the past year, rents for office and retail properties continued to advance – on average – in the cities covered by the analysis. even though – in percentage terms – the increase in top rents at the regional locations for the two segments under review fell short of growth rates observed in metro­ politan areas, the main regional markets often hold better opportunities for real estate investments when compared to the larger conurbations. this is due to the fact that rent developments are often more stable in the regional centres – moreover, yields are higher compared to the top locations. the outlook for the current year is also generally positive. As strong demand for office space meets a rather short supply, vacancies at all locations analysed keep falling strongly, with top office rents rising. the retail real estate market, in contrast, is showing signs of saturation, with rent increases beyond one per cent only possible at around half the regional locations. in this context, main regional centres offer stronger potential compared to metropolitan areas. Retail rents in the country’s largest cities, particularly at the best locations, have now reached a level where there is hardly any scope for further growth. this eighth market report on “Regional Real estate Markets” supplements “the German Real estate Market” – our series of specialist publications published in the autumn of each year. in addition, we analyse the commercial real estate markets in individual German federal states: the regional report for hesse, Rhineland­Palatinate, and the saarland is scheduled for June 2017, with the report for baden­Württemberg set to follow in novem­ ber 2017. An overview of DG HYP’s real estate market reports is available on our website: http://www.dghyp.de/en/unternehmen/markt­research/ DG HYP March 2017 2 3 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017 WIDESPREAD GROWTH IN OFFICE AND RETAIL RENTS IS OVER In the commercial real estate market, generally high demand from investors has Eighth edition of the “Regional significantly raised the level of interest in housing portfolios or logistics properties, as property centres” report well as niche markets such as micro apartments and hotels in recent years. However, office and retail properties remain by far the most important market segments, and these are the areas we focus on in this report. The further sharp decline in rental yields last year is a signal of the consistently high demand for attractive properties in these two asset classes. The focus here is on large cities with high financial power and large and liquid property markets. As in most international property markets, the lion’s share of investment here is in commercial real estate. In Germany, these top locations – which are often regarded as a benchmark for the market as a whole – include the seven most densely populated cities. However, secondary locations also offer consid- erable potential. Rents here are usually more stable and yields are higher. In this eighth edition of our market report on Regional property centres, we address the growing need for information and market data on these locations, in order to better assess the risks and opportunities and compare them with those of the top locations. As previously, in addition to 12 regional centres throughout Germany, the market report also includes the 7 top locations as a reference point. OVERVIEW OF LOCATIONS 12 regional centres 7 top locations (Index: Regional 12) (Index: Top 7) City Federal state City Federal state City Federal State Augsburg Bavaria Leipzig Saxony Berlin Berlin North Rhine- Bremen Bremen Dresden Saxony Düsseldorf Westphalia Rhineland- Pala- Darmstadt Hesse Mainz Frankfurt Hesse tinate North Rhine- Essen Mannheim Baden-Württemb. Hamburg Hamburg Westphalia North Rhine- North Rhine- Hannover Lower Saxony Münster Cologne Westphalia Westphalia Karlsruhe Baden-Württemb. Nuremberg Bavaria Munich Bavaria Stuttgart Baden-Württemb. In the following chapter we analyse the office market in the 19 locations included. A Office and retail: market overview of the retail sector starts on page 10, followed by individual analysis 12 regional centres and of all locations in alphabetical order from page 18. Pages 68 to 70 consist of tables 7 top locations showing the most important market data. Office properties: Modest rent growth and vacancy rates down sharply Impact of economic environment on demand for office space The solid performance by the German economy continued last year. Macroeconomic In 2016, economic growth in growth reached its highest level since 2011, up by 1.9 per cent on the previous year, Germany reached its highest level after a slightly slower pace of 1.6 and 1.7 per cent in the two previous years. Private for five years at 1.9 per cent and public consumption once again created the basis for the continuing upturn. While the former was also boosted by the low oil price, the latter expanded as a result of expenditure on accommodation and subsistence for migrants who arrived in 2015. Capital expenditure provided only weak growth impetus in 2016, while foreign trade made a slightly negative contribution. 2 3 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017 The pace of growth is likely to be slightly weaker this year. We expect macroeconomic Growth weaker in 2017, partly due to growth to be down by about a third on 2016 at 1.2 per cent. However, a good half of fewer working days the growth divergence compared to the previous year is due to a smaller number of working days. Adjusted for this factor the gap narrows to 0.3 percentage points. Continuing subdued export business and a rising inflation rate - which is likely to curb consumer spending slightly - militate against any stronger growth this year. ECONOMIC FORECAST: MACROECONOMIC GROWTH RATE LIKELY TO LABOUR MARKET REMAINS POSITIVE: NUMBER OF PEOPLE IN WORK SLOW IN 2017 HAS RISEN UNTIL RECENTLY 12 44 13 forecast 10 43 12 8 42 11 6 41 10 4 4,1 40 9