- New bulwiengesa study forecasts that the number of office employees will increase by 62,000 or 8.7% by 2020
- Additional demand for office space in Berlin will reach up to 1.6 million sqm by 2020
- Most of the demand for office space comes from TMT companies, public administration and corporate services
- According to market experts from TLG IMMOBILIEN, Union Investment and CA Immo, inner-city and suburban sub-markets with excellent (public transport) connections and urbanity are benefiting the most
- Berlin-Mitte, City-West, Mediaspree and Europacity will remain hotspots
- Speculative office space development projects and construction rates are on the rise

Berlin, 31 August 2016 – Berlin’s office property market is booming: office space could soon grow scarce in the German capital. According to the bulwiengesa AG study ‘Market forecast for 2020 – Berlin’s office employees of tomorrow’ commissioned by TLG IMMOBILIEN AG, the number of office employees in Berlin will increase by 62,000 or 8.7% to around 775,000 by 2020. This corresponds to 40% of all earners in the city.

The boom in Berlin’s office-related job market will also have a positive effect on the city’s office property market. Market experts agree that office rents in Berlin will increase further in the coming years. Additionally, the increase in the number of earners in Berlin by 2020 will generate additional demand for office space that could hit 1.6 million sqm.

These are just some of the results of this assessment of Berlin’s office property market in which Andreas Schulten, CEO of bulwiengesa, Niclas Karoff, member of the Management Board of TLG IMMOBILIEN, Philip La Pierre, Head of Investment Management for Europe at Union Investment Real Estate GmbH and Gregor Drexler, Head of Asset Management at CA Immo, participated.

Digital companies are driving the office market

At 24 per cent, the number of earners in Berlin grew more quickly between 2005 and 2015 than in central London (23%). These positive developments will continue over the next few years, driven by start-ups and major digital companies in particular. These are the results of the bulwiengesa study ‘Market forecast for 2020 – Berlin’s office employees of tomorrow’. Data from the local office property market show which locations in Berlin attracted the most new internet sector employees between 2005 and 2015: Berlin-Mitte is far in the lead with 33 per cent, followed by Prenzlauer Berg and Kreuzberg with 15 per cent apiece. The additional growth forecast for 2020 will create a sector structure in which technology, media and telecommunications companies, public administration and corporate services will account for 43% of all earners.

Digital companies in Berlin have overshadowing other demand groups, including the government, public administration, auditors and tax advisers, since 2011. ‘In 2020 Berlin will have 775,000 office employees who will represent 40% of all earners’, predicts Andreas Schulten from bulwiengesa. Driven by Berlin's evolution into a start-up nucleus, at 14,000 the largest increase in office employees is expected to be in the technology, media and telecommunications (TMT) sector. There are also more than 11,000 office employees in the other corporate services sector who are linked just as closely with the sector occupied by prosperous internet companies (advertising, research, auditing, consulting etc.).

Demand for office space in Berlin will hit 1.6 million sqm by 2020

Regarding the outlook of the office market in Berlin, Niclas Karoff, Managing Director of TLG IMMOBILIEN AG, believes that ‘Office rents in Berlin will continue to rise over the next few years. Low vacancy rates of less than 3.5 per cent, historically low rates of office construction and the rapid increase in the number of office employees will cause rents to grow at an above-average rate in the future.’ Karoff continues: ‘The number of office employees will increase by 62,000 by 2020. If we assume that every office employee uses 20–25 sqm of space, we can expect demand for up to 1.6 million sqm of office space by 2020. That is around three times larger than the office space on Potsdamer Platz and Leipziger Platz combined.’

The development of top and average rents also reflects the scarcity of space. ‘In the past three quarters the top rent has risen from 22.00 EUR/sqm/month to 25.50 EUR/sqm/month. This equals an increase of more than 15 per cent in not even one full year. Average rents have also increased by around seven per cent to 15.60 EUR/sqm/month within one year. This trend will continue in the rest of 2016 and beyond’, says Andreas Schulten.

Speculative office space projects will increase

Gregor Drexler, Head of Asset Management at CA Immo, sees similar developments: ‘Demand and therefore rents will continue to increase in office hotspots in Berlin. Additionally, speculative office space projects will increase in number. However, this depends on projects and will tend to happen in exceptionally popular locations.’ In the opinion of Drexler, the high level of demand combined with low vacancy rates has caused the rate of construction to accelerate significantly: ‘However, this is not enough to meet the level of demand. We consider the creation of 350,000 to 450,000 sqm of office space per year in Berlin sustainable.’

Market experts agree that office tenants in the growth sectors are looking for inner-city and suburban sub-markets with excellent (public transport) connections and urbanity in particular: ‘Due to the current scarcity of space, all central locations will perform well in the near future’, says Philip La Pierre, Head of Investment Management for Europe at Union Investment Real Estate GmbH, adding that 'Locations such as Berlin-Mitte, City-West, Mediaspree and Europacity – not to mention Adlershof, for example, in light of Allianz’s move there – are and will remain attractive to office tenants.’ Investment expert Philip La Pierre also sees potential for office property project developments in city districts such as Kreuzberg, Tempelhof, Schöneberg and Südkreuz.

Only top locations are interesting – prices can be adjusted for structural deficits

Even if the prime yields from office properties in Berlin are currently just 3.85 per cent, market experts believe that the investment prospects remain positive. Investments are particularly lucrative in the well-established sub-markets in Mitte, Kreuzberg and Charlottenburg, as well as in other selected locations within the circular railway surrounding the city centre. According to investment expert Philip La Pierre, ‘With prices on the rise, we believe that only top locations or properties with so-called “under-rent” in sustainable locations are lucrative. There will presumably be no downside for high-quality office properties in the future.’ However, La Pierre is critical of the current price boom: ‘The prices of all other properties in weaker locations and with structural deficits could be adjusted. We believe that tenancy problems will arise quickly here – even if such properties are extremely popular today.’

Insufficient growth in the volume of space could disadvantage locations

Despite all of the positive growth prospects, Niclas Karoff also seeks risks if Berlin is unable to meet the demand for modern office space and good infrastructure: ‘Most of the office space demand groups operate in non-disruptive lines of business and bring life to the city. In order to tie them to the city in the long term, Berlin must permit moderate increases in building density and strengthen its IT infrastructure, especially by expanding its 5G network and public Wi-Fi.’ Additionally, permit processes for new office buildings should be streamlined and accelerated, according to Karoff, Managing Director of TLG IMMOBILIEN. ‘Insufficient growth in the volume of space could disadvantage locations and hobble the growing employment rate. In terms of inner-city density, Berlin requires more exemplary projects such as Europacity near the main station, and people in the capital should not shy away from major projects.’

The full study as well as a shot version is available for download at:
http://www.tlg.eu/news-publications/publications.html.

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About Union Investment

Union Investment is synonymous with strategic real estate investments all over the world. We provide private and institutional real estate investors with an extensive investment platform. We are currently managing investment assets of around EUR 28.5 billion in open-end mutual real estate funds, special funds and service and pooling mandates. We invest in the office, retail, hotel and logistics segments and actively manage a portfolio of around 320 properties in 24 countries.
For more information, visit www.union-investment.de/realestate

About TLG IMMOBILIEN AG

TLG IMMOBILIEN AG is a stock exchange-listed leading commercial real estate company focusing on Berlin and growth regions in Eastern Germany. For 25 years, TLG IMMOBILIEN AG is synonymous with real estate expertise in Germany's East. TLG IMMOBILIEN AG generates stable rental income and exhibits low vacancy rates, very good building stock and profits from its local employees' excellent market knowledge. As an active portfolio manager, TLG IMMOBILIEN AG is specialised in commercial properties for office and retail use. TLG IMMOBILIEN AG focuses on managing a high-quality portfolio of office properties in Berlin and other regional economic centres, as well as a regionally diversified portfolio of retail properties in highly frequented micro locations. The portfolio also includes seven hotels in Berlin, Dresden, Leipzig and Rostock. TLG IMMOBILIEN AG's properties stand out not only due to their excellent locations but also because of their very long-term rental or lease agreements.

As at 30 June 2016, the value of the properties under IFRS totalled EUR 1,983 bn. As at the same reporting date, the EPRA Net Asset Value per share amounted to EUR 17.33.

About CA Immobilien Anlagen AG

CA Immo is the specialist in office property in central European capitals. The company covers the entire value chain in the commercial property sector: Rental and management as well as project development with high in-house construction competence. Founded in 1987, the company is listed on the ATX Vienna stock exchange and owns property in Germany, Austria and Eastern Europe. CA Immo Deutschland has specialised in developing mixed use urban quarters. Examples of such are Arnulfpark® in Munich, the Marina quarter in Regensburg, the Europaviertel in Frankfurt, the Zollhafen in Mainz, BelsenPark® in Düsseldorf or Europacity in Berlin. Its best-known properties in Germany include the Tower 185 in Frankfurt, TOUR TOTAL and John F. Kennedy Haus in Berlin as well as Skygarden and Kontorhaus in Munich, all of which were developed as green buildings. CA Immo also has proven expertise in the areas of construction management and property management through its subsidiaries omniCon and Deutsche Realitäten (DRG). Both subsidiaries also offer their range of services to third parties. Additional information can be found at www.caimmo.com