by Martyn Harrop
The German economy performed better than expected during 1988 with the real GNP growth projection of the five leading economic research institutes having been recently revised to 3.5% mainly owing to a continuing strong export base and solid investment. The latest forecast is for a slowdown of GNP growth in 1989 to around 2%.
Prophecies of doom and disaster by many economists following the stock market crash and dollar crisis in October 1987 did not materialise.
The stock market in Germany has witnessed steady growth since the crash. Further indication of the renewed confidence is the level of capital investment where estimates for the year have had to be revised from 2% to 3% up to around 5.5%. This is particularly true in construction which accounted for nearly 57% of total gross fixed investment in 1987 with a forecast rise of 5% for 1988, and for the level of construction to remain buoyant in 1989.
The positive state of the economy is reflected in the property industry with almost all rental markets seeing benefits in take-up levels and/or rental increases leading to increased development activity. Pressure on the investment side of the property industry also remains high with a tendency for yields to tighten.
Offices
Despite the buoyant economy, the record year of take-up seen in 1987 was not repeated in 1988. This is due in many instances to lack of available supply rather than a visible slackening in demand.
Hamburg continues to improve with an annual office take-up in recent years of between 100,000 m2 and 130,000 m2 leading to an increase in rents and a reduction of the vacancy rate. Prime rents are around DM30 per m2 per month, while the better suburban office locations fetch between DM18 and DM20 per m2.
The City-Sud area is particularly noteworthy in this connection with over 120,000 m2 let in the last 15 months. A Dutch investment group recently acquired a site through our Hamburg office here from the German Federal Railway to erect 45,000 m2 of offices in six buildings. Construction is due to commence in the summer.
Having taken note of the London Docklands success story the Hamburg senate is discussing the possibility of privatising the picturesque “Speicherstadt”, the 100-year-old freeport area of the city situated on a 15 km2 island in the Elbe. There are plans for the multi-storey brick warehouses along the canals to be converted to office, residential and retail use, the warehousing facilities being relocated to a new container terminal.
Dusseldorf is undergoing a similar process to Hamburg with a continued reduction of the over-supply situation present at the beginning of the 1980s as a result of an annual take-up of around 100,000 m2 and relatively little new development. We anticipate a rise in rents in the city area in the coming months due to continued demand. Rents for prime offices are around DM35 per m2, while suburban rents are between DM18 per m2 and DM22 per m2 per month.
Development sites in the traditional office areas of Dusseldorf are almost non-existent so that the city council and developers alike are being looked to to create new office submarkets and hence offer companies an alternative to leaving the city area for the surrounding communities such as Ratingen or Neuss.
Dusseldorf claims to be the Japanese economic centre of Europe with 320 companies represented in the state capital. It is therefore second only to New York in the world in this respect and continues to be an attraction to countries from the Far East with over 60 companies from Korea and Taiwan represented.
The explosion in office rents in Frankfurt, the country’s financial centre, continued unabated in 1988. While take-up is unlikely to achieve the figures for 1987 this is due more to lack of suitable space than a reduction in demand. Consequently rents for prime space have risen to a level of over DM50 per m2 with isolated reports of the DM60 per m2 barrier having been broken. Our Frankfurt office reports strong demand for the first phase of the Westend Caree, for example, a 35,000 m2 office development being carried out by a Dutch-based development group. Rents in suburban locations are also increasing slightly with DM18 per m2 to DM24 per m2 in Niederrad and DM19 per m2 to DM22 per m2 in Eschborn being achieved.
With 11 new-generation office tower schemes being considered in the city — the first of which the Messeturm, a development of Tishmann Speyer Properties Inc — is already under construction, a new phrase has been coined for Frankfurt, “Tower Power”. The tallest building in the city is currently the Dresdner Bank at 166 metres. The Messeturm will be Europe’s tallest building with 254 metres, but not for long as Fay KG are currently planning their Campanile next to the southern entrance to the main railway station which will be 265 metres high. The scheme is being funded by DEGI — the open-ended property fund of the Dresdner Bank — the Bayerische Hypotheken-Wechselbank and the Leonberger Bausparkasse.
The office market in Stuttgart, the German city in first place in terms of increases in the number of employed, new orders, investment and export activity, has seen a relatively quiet year in 1988. The new 60,000 m2 owner-occupied headquarters of Daimler Benz is nearing completion in the suburb of Mohringen. Due to the lack of space in the city centre the banks are looking increasingly to peripheral locations to centralise their present facilities, as with the newly created Landesbank who are planning around 130,000 m2 next to the railway station, and the Landesgirokasse (local savings bank) who have acquired a site for the development of 9,000 m2 of space from the state government in Stuttgart West. Another important owner-occupier development is that of the Dresdner Bank, Stuttgarter Bank, Landeskreditbank and OTV (Trade Union of Public Employees) at the Kleine Schlossplatz.
Rents are around DM30 per m2 per month in the central business district (although the market has not been tested recently in respect of a new development offering large units), while rents in suburban locations range from DM18 to DM23 per m2.
With relatively tight market conditions throughout the city, a host of projects are being considered by developers which, if all constructed, would lead to a considerable over-supply. Looking at past history in Stuttgart this seems unlikely and we foresee good prospects for well-researched projects in the future.
The Munich office market has been characterised in the recent past by large cyclical fluctuations. The current boom in demand which began in 1985 has seen the former over-supply shrink continously so that today there is virtually no space available in the more popular office areas, with a consequent rise in rent levels. Rents in the prime areas of the city are between DM40 and DM50 per m2.
The present boom has led to developers commencing office schemes throughout the city. With a certain cooling off in the letting market in the last year compared with the boom in 1986-87, it is inevitable that there will once more be an over-supply by 1990 with those properties in questionable locations likely to suffer most.
Retail
With consumer spending levels at a high level, demand for retail outlets remains strong with rental increases in top pitches in all cities registered. This situation is likely to remain as new retail schemes form a very sensitive planning area, both greenfield and city centre.
The protectionist lobby of local retailers in the town halls of the country remains very strong, making planning consents for new schemes difficult to come by.
Consequently refurbishment and redevelopment of some of the existing centres, many of which are glaring examples of how to get it wrong, are becoming the subject of increasing attention by developers.
Warehousing/hi-tech/industrial
Despite the fact that properties in this category are traditionally owner-occupied in West Germany there is a growing move to an investor-led rented market.
Companies such as Trammel Crow, Brixton, Slough and Mackenzie Hill — who led the way in the 1970s — are being increasingly copied by German developers and investors. Significant activity is restricted to the cities of Hamburg, Dusseldorf, Cologne, Frankfurt and Munich.
Demand has been encouraging during the last 12 months and several new schemes are in the pipeline. For example, Trammel Crow have purchased a 35,000 m2 site near Hamburg airport for a scheme which, according to the developer, is already virtually prelet.
A further site has been acquired by the company in the Billbrook area of the city extending to around 40,000 m2, no doubt based on this success.
Slough Estates have also announced a scheme on a 90,000 m2 site at Bahrenfeld in the city.
Rents for good quality office/warehouse developments with a hi-tech image are as follows:
Investment/development
The German property investment market continues to be dominated by domestic insurance companies and open-ended property funds. The latter particularly are experiencing difficulty in maintaining the investment levels in property, which their articles of association require, because of the influx of funds and lack of available investments. There was an unprecedented inflow of over DM3,000m in funds during 1987, while up to the third quarter of 1988 almost Dm2,200m had been registered, giving the funds a very high level of liquidity.
The increasing involvement of foreign investors and developers is being witnessed on a broader scale than in the 1970s when the British and Dutch were largely on their own. Investors from Scandinavia, the Far East and across the Atlantic are determined to build up portfolios in German real estate.
