Hamburg, January 26, 2023. The long-lasting 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 pose enormous challenges for the real estate sector. Many market participants are unsettled, investors are becoming more risk averse and financiers are acting more cautiously. Nevertheless, the Hamburg office market is in robust shape. Stable prime rents, high take-up and low vacancy rates indicate that the office market in the Hanseatic city remains highly attractive. On the residential market, on the other hand, the continuing housing deficit is driving up rents, while at the same time changes in financing conditions are leading to purchase price discounts. These are the key findings of the press conference "The Hamburg Real Estate Market - Outlook 2023", which was attended by Peter Axmann, Head of Real Estate Clients at Hamburg Commercial Bank, Jörn Stobbe, Spokesman of 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 deficit in the Hanseatic city drives up rents - changed financing conditions lead to purchase price discounts
Only 7,461 apartments were completed in Hamburg in 2021, a third fewer than in the previous year. On this basis, Colliers puts the aggregate housing deficit in the Hanseatic city for 2021 at 51,833 units. Existing rents in Hamburg rose by an average of 3.2 percent p.a. from 2017 to 2022, with the increase in 2022 at 3.8 percent, i.e. above average. It is striking that the increase in new-build rents 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-build activity in Hamburg in 2023. It is unlikely that the housing deficit will decrease in the foreseeable future. We are also observing an increasing shift to the urban periphery: Districts such as Billstedt are becoming increasingly attractive due to the affordable housing that is still available - while at the same time being well connected to Hamburg's city center."
Colliers expects the residential market to remain dynamic in line with the current market environment. Sascha Hanekopf: "Further interest rate hikes will put more pressure on real estate yields. Although investment 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 unchanged dividend expectations on the part of investors will lead to purchase price discounts in the medium term."