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Berlin - Germany
Berlin
As any company knows who’s been looking for office space for a sizeable amount of staff in Berlin, the market has tightened up drastically over the past two years. It’s now a very different story to how things were five years ago, where plenty of vacant space was coming on stream, often in attractive and hip locations, appealing to new arrivals, start-ups, and expanding local businesses.
The current shortage of office space (in addition to the highly-publicised, dramatic developments on the residential market – of which more elsewhere in this issue of REFIRE) means that investors from everywhere are now targeting the Berlin office market. In the first half of this year, foreign investment into the city’s office market has increased by 160%, driven by Berlin’s long-term growth prospects.
Berlin received a significant increase in global capital in the first six months, with about 70% of the total US$5 billion invested originating from outside Germany. According to Pranav Sethuraman, JLL global research analyst, “This is global capital looking at Berlin, comparing it to other opportunities around the world and believing in the city’s overall growth prospects.” This year’s cross-border investment volume in the city has already surpassed the total for last year, as the looming shortage attracts new investors.
The office vacancy rate in Berlin is now just 1%, and although there is 900,000 sqm of new space in the pipeline between now and the end of 2020, half of that has already been pre-let. Prime rents have risen from €22 to €35 per sqm since 2013, and rents are expected to rise by a further 10% in the coming years.
So far this year, private equity group BlackRock has invested €116 million in an office project in the city’s Kreuzberg district, while Google bought an office for its own use in the city centre. Cording Capital and Meyer Bergman have also all invested in Berlin this year, joining the likes of Blackstone and Italy’s Generali/Poste Vita joint venture.
They are all drawn to the sector, despite yields that have sunk as low as 3%. However, new investors looking for opportunities are frequently being stymied by the lack of suitable large, single assets that they can get their hands on. They’re having to look further out into the periphery to find assets, such as Spandau and Adlersdorf, where big new industrial and technology hubs are developing.
According to Rüdiger Thane, regional manager at JLL Berlin, “Most investors looking at Berlin are seeking core assets in prime locations. However, there is opportunity in so-called ‘B’ areas a little off the beaten track.” The city’s population continues to grow, acting as a driver for the sector, and is expected to rise 7.5% to a total of 3.8 million by 2030.
