Hamburg Market Report
OFFICE LEASING AND INVESTMENT Q1 2016
Investment market off to a dynamic start – solid letting market Robert Köwener | Consultant | Research | Hamburg
Office Leasing The Hamburg office leasing market generated slightly below-average results with take-up at 95,300 sqm, as opposed to trends of increasing takeup recorded in most German top locations. Leasing performance is down nine percent from the five and ten-year average. A lack of large scale deals depressed the result.
Take-up of office space in Hamburg (in 1.000 sqm)
540 430
440
525
540
95 Solid demand - lack of large scale deals The largest-scale deals recorded in Q1 involved the start of construction of an owner-occupied office building owned by Otto-Group in Bramfeld with around 6,000 sqm and one owned by an insurance company in Wandsbek with 6,500 sqm. Several companies are looking for space in this size segment, which will drive take-up in the quarters to come. Take-up generated by deals under 5,000 sqm even outperformed the five-year Q1 average by around 5%, and we are expecting this space segment to be a solid foundation for growth in the next few months as well. The largest increase in market share was recorded in the space segment of between 2,000 sqm and 5,000 sqm. In 2015, this segment accounted for 16% of total leasing performance with a current market share of 27%. In particular the leases signed by Aerius Marine GmbH for 4,400 sqm at the Hamburger Welle building and by Sharp Electronics GmbH for 4,000 sqm on Nagelsweg contributed to the gain in take-up.
2011
2012
2013
2014
2015 Q1 2016
Commercial transaction volume in Hamburg (in billion €)
In spatial terms, take-up activity was most lively in the City submarket as usual with a stable market share of 28%. Larger-scale deals here included leases signed by MedX - Gesellschaft für medizinische Expertise mbH for 2,600 sqm (Neuer Steinweg 28), Facelift brand building technologies (Girardet Höfe, Gerhofstraße 19) for 2,200 sqm, ABC Business Center for 1,300 sqm (Esplace, Esplanade 40) and esome advertising for 1,250 sqm (Hohe Bleichen 10).
Share of size segment of leasing performance Q1 2016
The peripheral Hamburg-Ost submarket surprisingly ranked second primarily due to the owner-occupier deal by Otto-Group already mentioned above. This submarket accounted for 14% of total take-up on the Hamburg market. Q1 figures once again reflected the traditional distribution of take-up among a variety of industries. Retail and gastronomy (19%), consulting (18%) and manufacturing (15%) accounted for higher shares, playing a more significant role in Q1 2016. Average rents showing slightly upward trend
Prime and average rents (in € per sqm)
Average rent throughout the entire market increased moderately in Q1 by €0.10 per sqm (0.7%) to a current €14.60 per sqm. In the previous year prime rent saw an increase of €0.50 per sqm, which can largely be attributed to leases signed for new-build space in prominent city locations. Prime rent remained unchanged in Q1 at €25.00 per sqm. Vacancy rate on low, completions on moderate level The total amount of space available for immediate tenancy dropped by around 125,000 sqm over the past 12 months. Only around 60,000 sqm of office space was added to the market in Q1 and was almost fully preleased or taken up by owner-occupiers, contributing unsignificantly to easing the current market situation.
Vacancy rate (in %)
Over the course of the year, we will see single deals at around €28.00 per sqm for premium new-build space in City locations. Project developments such as those at Alter Wall, Stadthöfe and possibly the former Commerzbank building on Neß offer potential. Vacancy fell to an all-time low of 5.0% due to belowaverage completion rates and high demand. Within 2016 some 250,000 sqm office space will be completed.
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Market report | Q1 2016 | Office leasing and investment | Colliers International
Favorable market situation spurs promising start to year Despite the lack of large-scale deals at the start of the year and their negative impact on results, we are not seeing a trend reversal. Several leases for large-scale space are currently under negotiation and will be signed over the course of the year. Favorable economic conditions and the positive outlook will continue to generate solid demand for space over the next few months. Colliers International therefore expects annual result to exceed 500,000 sqm.
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Fast Facts Office Leasing Take-up
95,300 sqm
Prime rent
25.00 €/sqm
Average rent
14.60 €/sqm
Vacancy rate
5.0%
Available space Stock
Market report | Q1 2016 | Office leasing and investment | Colliers International
675,000 sqm 13.3 million sqm
Investment The Hamburg real estate investment market carried its strong momentum from the end of the previous year into 2016. While transaction activity took a breather throughout Germany in Q1, a total of €830 m was invested in commercial assets in Hamburg.
Share by property type Q1 2016 (in %)
Transaction activity above average This reflects a yoy increase of 11%. The city’s 10-year average transaction volume was outperformed by 40%, putting the Hanseatic City in second place ahead of Berlin (€710 m) und behind Munich (€1.05 bn). There is a clear indication among national and international investors that the favorable conditions on capital markets in combination with the positive economic outlook and above average leasing performance is fueling market activity. The willingness among investors to pay higher prices for real estate assets in Hamburg has risen.
Transaction volume by buyer group (in million €)
The highest-volume transaction recorded in Q1 was a forward deal for a property in the City Nord office submarket valued at around €125 m closed by Hamburgbased real estate developer TAS and a fund managed by French asset manager Amundi Real Estate. The Telekom Campus project development located at Überseering 2, which encompasses total gross floor space of 44,000 sqm, will be occupied in its entirety by the ICT company. Ongoing yield compression, project developments gain in popularity Hamburg is also experiencing ongoing yield compression. We saw a drop in prime yields in both the office and retail segments by 10 basis points to a current 3.90%. Transactions such as the purchase of Sandtorkai 68, for which Colliers International was commissioned to advice the purchaser, and Helmut-Schmidt-Haus are two examples illustrating this downward trend. Investors are looking for project developments with a low pre-lease rate to secure potential core assets at an early development stage as well. Those who cannot or do not want to follow this strategy face fierce competition. The growing number of forward transactions is an example of this development.
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Gross initial yield by property type (in %)
Market report | Q1 2016 | Office leasing and investment | Colliers International
International investors take a back seat Although international investors were less active buy-side and sell-side in Q1, their participation in bids was comparable to the previous year. International investor share in total transaction volume fell from 57% in the previous year by around €250 m to 30% in Q1 2016. Due to the current market environment we expect this share to increase to match previous year results both buy-side and sell-side. Properties sold in Q1 were simply not in line with the investment criteria of most international investors. The fact that foreign investors were underrepresented in Q1 is not an indication of a trend reversal. International investors will most certainly make a comeback in Hamburg this year. We expect to see a new record high in transaction volume generated by international investors. Asset and fund managers are buying and project developers are selling Asset and fund managers were among the most active players when it came to selling properties, investing a total of €290 m and accounting for a market share of 35%. The sale of Westend Ottensen by ING Real Estate to TRIUVA for around €48 m and the sale of the main building of the Jahreszeitenverlag publishing house by Hannover Leasing to KGAL GmbH also for around €80 m contributed to the higher market share of this buyer group. Open-ended real estate and special funds as well as project developers and development companies were very active, generating a market share of 25% and 16%, respectively. Project developers were the most active sellers, posting a transaction volume of €209 m and accounting for a 25% market share in total investment volume. In line with the current market cycle, we will continue to see project developers playing the most active role when it comes to buying and selling properties.
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Other seller groups included asset and fund managers accounting for 18% and open-ended real estate and special funds accounting for 16%. Office buildings most popular asset class, retail in scarce supply Office assets traditionally contribute the largest share in total transaction volume on the Hamburg market. Their share remained stable at 68% in Q1. Vacancies in office properties are being increasingly priced-in. This is a promising approach in light of good leasing performance and low vacancy rates. The speed at which assets change hands has picked up even more compared to the past couple of years. Roughly 12% of total investment volume in Hamburg was poured into hotels, putting this asset class in second place with five deals signed so far this year. Retail assets did not account for a significant market share. This can mainly be attributed to scarce supply in this segment and to a lesser extent to low demand. Favorable market situation spurs promising start to year Hamburg continues to be one of the strongest investment markets in Europe. The fact that Hamburg outperformed Berlin in Q1 2016 in terms of investment volume once again underscores the city’s significance for the German market. We expect the strong momentum seen in the previous year and in Q1 2016 to remain unchanged for the remainder of this year. A number of large-scale transactions were initiated in the previous year, and we expect them to be concluded in the coming months. The only limiting factor here is the scarcity of adequate assets. In view of the extremely favorable financing environment, the run on quality products in the core segment will remain unchanged.
Market report | Q1 2016 | Office leasing and investment | Colliers International
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