In the German real estate market there is a phenomenon appearing at the present time. Office locations are increasingly developing in contrary directions. Both the letting and the investment market are equally affected by this polarisation. The winners in this development are the CBDs and other central areas.

These locations are enjoying a continuing high demand for office space. There was an above-average reduction in vacancy in the last few months. Available space is becoming scarce because of the low number of completions in the previous year. It’s getting more and more difficult to lease larger contiguous areas of space. This indication, in combination with the above-average demand, is making rents rise and thus these locations are already today showing signs of being a landlord’s market.

The situation is quite different in the fringe areas or suburbs. Here supply exceeds demand. These areas have hardly been able to profit from the very good letting situation, particularly in the last nine months. The mostly ageing existing stock is preventing any absorption of space worth mentioning. Project developments are only starting if at least 60% is already pre-let. The already comparatively low rents are hardly rising. In this tenant’s market situation, take-up is achieved almost exclusively on price.

As a result the investment market also appears to be split. Office buildings with good tenant occupancy in the CBDs or other central locations are greatly desired. The supply is not sufficient however, and is greatly exceeded by the demand. Therefore yields are steady at a high level. Office properties will remain expensive here in the future too. With top products, prices will even increase slightly. This will please owners. “We now have a seller’s market here,” notes Marc Kleinpeter, managing director of Colliers Trombello Kölbel Immobilienconsulting GmbH.

The buyers’ interest in office buildings in fringe locations or suburbs has its limits. The below-average take-up of office space holds a risk for properties with average remaining lease periods when reletting, particularly if they are more than 10 years old. Here there have been the most significant downward yield shift up till now. “All the same a whole series of sellers expect prices for these properties which are simply no longer in line with the market,” says Kleinpeter. In his view there will be one sale or another in the current year at below the previous value assumed. Price competition will therefore dictate that these locations are a buyer’s market.