Office and logistics demonstrate stability in uncertain times

Even in the second year of the pandemic, the two most important commercial real estate segments in the Hannover Region are proving to be extremely robust. The market for logistics and production properties set a new turnover record in 2021. Initial yields for both office and logistics and production properties are at a record low level, attracting the interest of investors to attractive projects in the Hannover Region. At second glance, however, the direct and indirect consequences of the health and economic crisis triggered by the Covid-19 pandemic are also evident in both submarkets:

• Office space take-up has fallen slightly overall despite stable letting turnover and the vacancy rate has increased noticeably since the start of the pandemic - similar to other strong German real estate locations.
• The supply of space for logistics and production properties continues to tighten, meaning that users and project developers are increasingly turning to existing sites and integrated locations.

These trends and other current key figures for the office and logistics market were presented today by Region Hannover and the state capital Hannover together with bulwiengesa AG. The data was compiled together with 22 market-shaping companies. Overall, the partners draw a rather positive balance for the real estate year 2021 and are optimistic about the new year.

Hanover Region

"In the past, this has been shown time and again: The Hannover economic region reacts robustly in crisis situations. Although a global health and economic crisis does not leave the Hannover Region unscathed, the office and logistics real estate market is resilient," summarizesUlf-Birger Franz, Head of Economic Affairs forthe Hannover Region.

The immediate effects of the pandemic are increasingly receding into the background; in 2022, the commercial real estate market will be increasingly shaped by the medium and long-term effects. It is therefore particularly important to be able to classify current developments on the basis of reliable data and assessments by regional players.

"Together with the real estate industry, we as a city and region stand for transparency and orientation on the Hanover real estate market,"saysAnja Ritschel,Hanover'sHead of Economic and Environmental Affairs.

It is primarily users of large spaces who are acting more cautiously. As in many other locations in Germany, rented office space tends to be smaller than in the years before the pandemic. According to market participants, the postponement of letting decisions by some potential large occupiers means that some of the project developments planned for the coming years do not yet have an anchor tenant or that large transactions are currently being postponed until the first half of 2022 due to lengthy negotiations.

This is probably one of the reasons why the annual balance sheet for the office real estate market once again shows a decline compared to 2020, even if the dip is comparatively small. Office space take-up at the end of 2021 was around 135,000 square meters - a drop of around 7% (10,000 square meters). Take-up is therefore around 16% below the five-year average of around 160,000 square meters.

No need to worry, Hannover shares this fate with the A-locations in Germany - despite signs of recovery, take-up in the second year of the pandemic is still around a quarter below the old record levels,"summarizes Andreas Schulten, Chief Representative at the consultancy bulwiengesa AG. The vacancy rate is also rising again by around 0.7 percentage points to currently 4 percent."But the core segment of the office market - i.e. properties let on long-term leases in sought-after locations - is very popular with investors," says real estate market expert Schulten,"and Hanover remains at the top of the list."

High-quality properties in good locations are in demand again, with prime rents in the city center remaining at the old level of EUR 18 per square metre in 2021 - an increase of EUR 1. Prime rents are also rising sharply on the outskirts of the city and on the arterial roads, to EUR 16 per square meter (up 70 cents).

For some years now, market players have observed that demand for logistics and production space in the region has been rising sharply, with annual demand more than doubling since 2016. The pressure on demand for logistics and industrial space in the Hannover Region will continue, partly because regional industry is increasingly being strengthened by bringing production back to or setting up production in Europe. Important new projects, including in the automotive industry, were brought to the region in 2020 and 2021.

"With the establishment of Faurecia and the VWN Academy, we have gained two important key projects in the science and technology park in direct proximity to large manufacturing companies in the automotive industry," says Anja Ritschel, underlining the positive development. The crisis has also shown that supply chains in trade and industry need to be made more secure and crisis-proof. The visible effects, such as the increased need for storage space, the rise in e-commerce and the heavy strain on logistics infrastructures in the courier, express and parcel services sector, are currently continuing unabated.

"From the point of view of market players, we are a strong and resilient location. To keep it that way, we will have to respond with an even more sustainable land policy and focus more on the revitalization of brownfield sites, for example,"says Franz, Head of the Department of Economics and Transport.

Anja Ritschel also shares this assessment: "In the state capital in particular, the effect of the systematic commercial space policy is evident, with which we secure commercial space and enable integrated solutions instead of just designating new commercial space on greenfield sites."

Logistics and industrial properties again registered record take-up of around 425,000 square meters of warehouse space in 2021 - an increase of around 4% or 15,000 square meters. Prime rents rose slightly to EUR 5.30 per square meter (up 10 cents).

"The impact of the coronavirus pandemic on the real estate market in Germany has shown that, among commercial property types, it is primarily logistics and Unternehmensimmobilien that are experiencing stable and high demand - despite a significant decline in foreign trade,"says Schulten. This is not the only reason why market players are optimistic about 2022. The vacancy rate is lower than it has been for years. Letting opportunities are rated as good to very good without exception.

Current trends, data and facts on the regional real estate market are regularly compiled in the "Real Estate Market Report Project Group" under the leadership of the Hannover Region together with the state capital and a further 22 partners from the regional real estate industry. The project group has been working with bulwiengesa AG since 2004.

The 2021 annual report and updated information on around 120 market-defining projects in the office, logistics, retail, residential and hotel segments are available online at www.immobilienmarktbericht-hannover.de . At the Real Estate Arena commercial real estate trade fair in Hanover (May 18-19, 2022), the three other major submarkets - retail, residential and hotel - will once again be the focus of greater attention.