AAP Finance

Berlin runs short of office space

By AAP Newswire

Nearly 30 years after the fall of the Wall, "cool" Berlin is booming, with some 40,000 people moving to the German capital every year to work not just at its vibrant tech start-ups but also increasingly at big multinational firms.

As the city once seen as a low-cost government backwater comes into its own as a European business centre, office supply has not been able to keep up with the sharp rise in demand.

"Berlin has come out of its pre-pubescent phase and is now becoming more grown up in a way that other big cities maybe already have done," said Stefan Franzke, CEO of Berlin Partner, which promotes investment in the city and helps companies open offices.

Building activity is up 90 per cent compared to a year ago with around 557,000 sq metres currently under construction, according to BNP Paribas Real Estate. This won't bring much relief in the short-term, however, as only around one quarter of that will be completed over the next 12 months and the majority has already been pre-let.

Average office rents in Berlin are now the highest in Germany - although premium office space in Frankfurt is still the most expensive - and vacancy rates are under two per cent, down from nearly 7.8 per cent in 2010.

The shortage is challenging both businesses and landlords to be open-minded about how to define office space and how to keep down costs.

Prime office rents spiked by 16 per cent in the year to the end of March to 33 euros ($A51.75) per square metre compared to 22 euros ($A34.50) in 2013, says BNP Paribas - far above what most start-ups can afford to pay.

This means Berlin, a city of 3.7 million people, is narrowing the gap on Germany's bigger business centres, Frankfurt and Munich, which can command 42 and 37 euros per sq metre per month, respectively, for top locations.