In contrast to the investment market, the office leasing market is remaining fairly stable. Developments in the German office market over the past four quarters have shown that, despite the use of home office, the office building remains a central element in the world of work, even in the ”New Work” movement. Nevertheless, potential space savings will become measurable in the German office market in the coming quarters. This will primarily be seen in peripheral locations of large office centres and in specific C and D locations. In contrast, there will still be high demand for office space in the central locations of the top 7 cities in the future. Investors will focus on so-called green office properties in the new build and refurbishment segments in central locations with modern space design.

This year, we looked again at the rents and yields of these top properties in prime locations on the German office markets. This resulted in the following aggregated market data:

• The limited supply of space and the high demand for office space in central locations in German office markets are leading to rising aggregate rents in the A, B, C, and D markets compared with our analysis from Q1 2022. For example, the prime rents in the A locations rose to an average of EUR 37.29/m² (+9.92 %). For the B locations, the average value of prime rents is EUR 17.03/m², which represents a growth of 5.09 %. For C locations, the average prime rent is 14.74 EUR/m² (+4.30 %) and for D locations 12.06 EUR/m² (+5.43 %).
• Current market dynamics have led to increasing yields on the German office markets over the past 12 months. For all aggregated location classes (A, B, C and D locations), there was a year-on-year increase in the level of prime yields. In A markets, the average level of prime yields is 3.37 %, an increase from last year’s analysis of significant 24.87 %. In the B markets, prime yields increased by an average of 6.59 % to 4.16 %, and in the C markets by 2.70 % to an average of 4.52 %. The average increases in the D markets were slightly lower at +0.75 % to 5.54 %.

• The continued high demand for office space on the German market is not leading to a nationwide decline in prime rent levels, despite the current economic turbulence. For the A locations, we expect prime rent levels to increase in the coming six months, especially in the new-build segment. For all other German office markets, we expect stable prime rents overall in the coming six months.

• Price declines combined with stable rental developments are expected to result in an increase in the level of prime yields over the next six months. (Exception Düsseldorf, where we expect a stable level of prime yields).

• The highest prime rent level according to our analysis is to be found in the office markets of Frankfurt (Main) and Munich, both at EUR 45.00/m². At EUR 7.90/m², the lowest top rents are to be found in the market of Salzgitter.

• The lowest prime yields (3.25 %) can be seen in the office market Düsseldorf. The highest prime yields (7.20 %) can be realized on the market Wilhelmshaven.

• Our analysis of yield developments over the past 15 years (including the financial crisis in 2008) shows that total returns in Germany’s top seven office markets were largely generated by the increase in market values. In smaller office markets, on the other hand, a larger share of total returns is attributable to income returns.

• The highest average annual total returns for the period 2007 to 2022 are attributable to the markets Leipzig (16.32 %), Chemnitz (15.31 %) and Dresden (14.76 %). Among the top 7 markets, by far the highest average annual total return within the observation period is observed in the market Berlin (14.40 %). The average value of the average annual total returns for the period under review at the A locations was 11.89 %, at the B locations 11.61 %, at the C locations 11.88 % and at the D locations 10.83 %.

Berlin-based Catella Residential Investment Management GmbH (CRIM) and Munich-based KVG platform Catella Real Estate AG acquired the project development for the CWE fund.

Michael Keune, Managing Director CRIM, said:  ”Berlin’s Pankow district is known for its attractive natural environment with the largest inner-city forest in Berlin, and there is strong demand for affordable modern sustainable housing in the area, especially for families, which is not being met by available supply. With this development, we are creating additional housing in a highly sought-after residential location in Berlin, with plenty of greenery in the surrounding area, such as Weißenseer Park with lido, open-air theatre, the nature reserve Am Faulen See, and the green corridor on Hansastrasse. The flats are mostly designed to be family-friendly and appeal to tenants due to their low operating costs and affordable rents.”

The properties are being built on a 6,850 square-metre plot using an innovative ‘zero-waste’ timber hybrid construction method where an exact quantity of raw material is sourced from sustainably managed forests and used up to avoid wastage. The buildings are also aligned with the KfW 40 standard and Sustainable Building Quality Seal, according to the Federal Ministery of the Interior and Community. This high level of energy efficiency level means the development can be financed as it only consumes 40% of the primary energy required by a comparable reference building, according to the domestic German Building Energy Act.

The ground floor flats feature terraces, and the upper floors have balconies and loggias or roof terraces. The underground car park is accessible via lifts and has 67 car parking and 176 bicycle spaces. There are ten charging stations for electric cars, each with a charging capacity of 11 kW.

A sustainable energy mix of partially renewable energy sources with district heating from combined heat and power, heat pumps, and solar photovoltaics is planned for the Falkenquartier. The photovoltaic system takes up about 30 per cent of the overall roof area.

Benjamin Rüther, Head of Fund Management CRIM, added: ” The European energy crisis has brought into focus the way developers build and adapt their assets for energy resilience.  Innovative construction and design processes also drive down operating costs in the long term for investors and tenants. The Falkenquartier development is being built as an efficient and innovative energy concept, using innovative timber module construction method to meet the low operating cost requirements at the core of our long-term investment strategy.”

About Catella Residential Investment Management GmbH (CRIM)

Catella launched its first European residential fund in 2007 and its first dedicated European Student Housing Fund in 2013. CRIM is a subsidiary of the Stockholm-based Catella  Group and its residential real estate business comprises portfolio management, acquisitions, sales and asset management. CRIM manages and advises several funds and mandates and has assets under management of more than €7,5 billion across 10 European countries.

About the FALKOWSKI GROUP

The FALKOWSKI GROUP develops modern residential properties for private buyers, capital investors and investors at liveable locations in Berlin and Brandenburg. As a project developer, the group oversees all phases of project development from the creation of building rights to handover.

For more information, please contact:

Catella Residential Investment Management GmbH

Stine Zöchling

Head of Marketing and PR European Residential

Telephone: +49 (0)30 887 285 29 76

Mobile: +49 (0)151 544 51 005

stine.zoechling[ at ]catella-residential.com