german-hawk-group
Are offices experiencing a revival?
Market Letter #1 '06
Times have been very hard on office space since 2001. When the new economy bubble burst, a lot of office buildings became vacant with a lot of planned, but still not realised office space in the pipeline.
Even if brokers predicted market recovery by 2005, it did not happen.
According to various estimates by the end of 2005 approximately 7.7 million m2 of office space was vacant in the big 5 cities (Berlin, Hamburg, Düsseldorf, Frankfurt am Main and Munich) – a new record high.
Now, once again newspapers and brokers are starting to proclaim a reversal in trends for the German office space market.
In 2005 rentals increased by around 16-18% in the big cities. And indeed there was far less new office space coming on to the market in 2005. Further and most importantly there now are signs of increasing demand for office space. Nearly all of the 5 cities are showing positive demand growth rates for 2006.
Even German real estate companies are showing signs of returning confidence and starting to buy office block opportunities. The stock market listed IVG, invested € 100 m in office space in Munich in 2005.
In the future even the German office market will have to accept slack market conditions with higher vacancy rates of around 8-10 % and rents under pressure. This is already a rule of thumb in other big international cities.
And times are likely to remain very hard for dated office concepts, as these offices are least easy to rent out.
How to take advantage: In our opinion, it’s still too early to see where the market will go. This is especially true for the office market. But with a belief in the predictability of market cycles, the office space market is now due for rebound. For investors with middle to long investment horizon it may pay off or even become a good investment.
Either way, we recommend caution and investment in real and sound major city opportunities.