News | Press Release

The Hamburg real estate market in 2023:
Office remains solid, but residential faces
major challenges

Hamburg, January 26, 2023

• Real estate boom in Germany over for the time being
• Many construction projects and acquisitions are postponed or abandoned
• Financiers are acting more cautiously
• Hamburg office market remains robust with stable prime rents,
  high take-up and low vacancy rates
• Sustainability (ESG) attracts investors and tenants
• Hamburg housing market: deficit in new construction increases pressure on rents
• Purchase price discounts due to changed financing conditions

The prolonged real estate boom of the past twelve years is over—in Hamburg as well as throughout Germany. Rising interest rates, high inflation, disrupted supply chains, and increasing sustainability requirements are posing enormous challenges for the real estate industry. Many market participants are feeling uncertain, investors are becoming more risk-averse, and lenders are acting more cautiously. Nevertheless, the Hamburg office market remains in robust shape. Stable prime rents, high space turnover, and low vacancy rates point to the office market’s continued high appeal in the Hanseatic city. In the residential market, however, the persistent housing shortage is driving rents upward, while at the same time, changed financing conditions are leading to discounts on purchase prices. These are the key findings from the press conference “The Hamburg Real Estate Market – Outlook 2023,” attended by Peter Axmann, Head of Real Estate Clients at Hamburg Commercial Bank; Jörn Stobbe, Spokesman for the Management Board at Becken Holding GmbH; and Sascha Hanekopf, Regional Manager Hamburg at Colliers.

Real estate financiers more cautious - ESG transition offers growth opportunities
"There was a turning point last year. The long-lasting real estate boom was brought to an end by rising interest rates, increasing supply bottlenecks and drastically increased construction costs - this has unsettled all market participants. Real estate financiers are reacting to the developments of recent months with a clear reluctance to lend, particularly when it comes to financing project developments. They expect more equity and have tightened their margins in order to cushion the increased risk costs," said Peter Axmann, Head of Real Estate Clients at Hamburg Commercial Bank. With regard to the increasingly important ESG requirements, the expert said: "As a financier, we want to support the transition of the economy to more sustainability, because the need for investment on the corporate side is enormous. The transformation of real estate from 'brown to green' will create growth opportunities for banks. Nevertheless, energy-efficient refurbishment will not be technically or economically feasible for all properties, so there will also be stranded assets."

As a result of the tight housing market and the failure to achieve the target of 400,000 new-build apartments per year in Germany, Peter Axmann expects rents to rise in future: "I expect rental costs to rise from around a quarter to around 35% of household income on average. This will bring us closer to metropolitan regions in other European countries where housing is already more expensive today." In addition to the continuing high demand for living space and the lack of new construction in recent years, rising costs for energy-efficient construction methods will also be reflected in project developers' calculations, which will ultimately have to be borne by tenants.

Office real estate market remains attractive with a view to ESG standards
Looking back, a steady increase in prime rents can be seen. In 2022, this was EUR 35 per square meter and the average rent was EUR 22 per square meter, an increase of 19% compared to 2021. Following a low point in 2020, office take-up returned to growth in 2022 and amounted to 554,000 square meters, compared to 77,000 square meters less in 2021. A similar peak result was last achieved in 2018 with take-up of 563,000 square meters. The vacancy rate fell by 10 basis points to 3.9%. The pre-letting rate was 62%. Alster locations (1.7%) and HafenCity (2.2%) in particular had very low vacancy rates (source: BNPPRE 12/2022).

"Looking ahead to 2023, a less volatile interest rate market could mean more transaction security. Hesitant investors and cautious banks may result in a further decline in transaction volumes. Due to the high construction prices, a decline in building completions is also to be expected, which will curb the increase in vacancies and cause rents to rise further, partly due to index-linked leases and ESG requirements," said Jörn Stobbe, CEO of Becken Holding GmbH, and predicted: "The outlook for the office property market remains positive, but in the long term only for sustainable project developments or modernizations of existing properties. Sustainability criteria are playing an increasingly important role for investors and, above all, tenants when selecting office properties. Those who make their existing properties ESG-fit will therefore increase their value in the long term."

Persistent housing shortage in the Hanseatic city drives up rents – changed financing conditions lead to purchase price reductions
In 2021, only 7,461 apartments were completed in Hamburg, a third less than in the previous year. On this basis, Colliers estimates the aggregate housing shortage in the Hanseatic city for 2021 at 51,833 units. Existing rents in Hamburg rose by an average of 3.2 percent p.a. between 2017 and 2022, with the increase in 2022 at 3.8 percent, which is above average. It is striking that the increase in rents for new buildings in 2022 (+6.2%) has picked up significantly more momentum compared to the average for the years 2017 to 2022.
Sascha Hanekopf, Regional Manager at Colliers in Hamburg, explains: "Ongoing difficulties with supply chains and rising construction costs will continue to slow down new construction activity in Hamburg in 2023. The housing shortage is not expected to decrease in the foreseeable future. We are also observing an increasing shift to the urban outskirts: districts such as Billstedt are becoming increasingly attractive due to the affordable housing still available there, combined with good connections to Hamburg's city center."
Colliers expects the housing market to develop in line with the current market environment. Sascha Hanekopf: "Further interest rate hikes will put increased pressure on real estate returns. Although investor interest in the Hamburg residential market remains high, prices are likely to react to the current economic changes in the future. Stricter financing conditions and investors' expectations of consistent distributions will lead to purchase price reductions in the medium term."