Real Estate Research

A postcard from….Hamburg


Growth and resilience

‘What Brexit could mean for Hamburg’, ‘Brexit and G20 hold “opportunities for Hamburg”’, ‘Harbouring ambitions: the draw of Hamburg’

Just a couple of headlines over the past few months.

Economic growth –tick. Population growth – tick. Employment growth – tick. Cultural growth - tick. For real estate investors, Hamburg’s appeal is being driven by growth across the board.  

Take the impressive €110m “Elbphilharmonie” concert hall in Hamburg, overlooking the river Elbe, which was officially inaugurated in January. It was originally scheduled to be completed in 2010 for less than half the eventual cost.

However, all of this was forgotten after a spectacular opening concert and light show, attended by Germany’s federal president and the chancellor. The concert hall is a symbol of the city’s confidence and enduring appeal. In its understated way, Hamburg has trumped even hip Berlin to having the best venue in Germany.

Built on a former industrial site in the harbour area close to the city centre, Elbphilharmonie is another milestone in the development of the “HafenCity” borough, one of Europe’s largest inner city regeneration projects. 

Construction there started in 2001 on the entirely new scheme which includes flats, offices, retail space, restaurants, cafes, schools and other public infrastructure. On completion in the mid-2020s, the area will be home to 14,000 residents and 45,000 jobs.  It is already bustling with life as residents have moved in, cafes have opened and a number of large-scale office occupiers have relocated.  

The arrival of the metro in 2012 further increased the appeal of this unique area.

With 1.75 million people within its city limits and 4.3 million people in the wider metropolitan area, Hamburg is Germany’s second largest city. It is the clear cultural and commercial centre of Northern Germany and has the status of a federal state, given its history, size and importance.

Hamburg is a wealthy city, achieving the second highest GDP per capita among Germany’s “Big 7” cities.  It has also been rightly praised for its high quality of life.

Arriving in Hamburg by air, many people are pleasantly surprised by the large number of parks, leafy streets and Lake Alster in the middle of the city. The famous “Reeperbahn” has numerous bars and clubs which are open around the clock,  where the Beatles famously served their apprenticeship. The city is also home to universities and research facilities, with an active student community.     

Hamburg continues to grow and It is no coincidence that the chief city planner’s concept is called “Metropole Hamburg - Wachsende Stadt“ (i.e. Metropolis Hamburg – Growing City).The city has already seen  impressive population growth in recent years, and forecasts published in 2015 from the statistics office of Hamburg and neighbouring state Schleswig-Holstein expect the city to grow by 50,000 to 100,000 people by 2035.

The attractions of the city are clear: Hamburg has the most diversified economy among the big German cities and offers a wide range of jobs.

Being home to Germany’s largest sea port, many trading related services are located in Hamburg. It is also home to an aviation cluster around the Airbus factory, as well as being a centre for renewable (wind) energy. 

Life sciences, IT and media are big sectors, with more than half of Germany’s national magazines and newspapers being produced for physical and digital distribution from the city.  

Finally, Hamburg is home to a range of banking, asset management and financial services firms including some larger national insurance and international accountancy firms.

These ingredients helped Hamburg weather the financial crisis and made the city economy resilient. At just 3.9% at the end of 2016, Hamburg has the second lowest unemployment rate of the “Big 7” German cities.  The latest economic forecasts show Hamburg outperforming national GDP growth with forecast growth rates of 1.7% in 2017 and 1.5% in 2018.

The city centre features a number of attractive high streets ranging from mass market retailing around the Moenckebergerstrasse & Spitalerstrasse area to the highly regarded luxury retail area around Jungfernstieg and Neuer Wall as well as the “Europa-Passage” shopping centre.

So what does this mean from a real estate investment perspective?

In the 15 million sq m office market, vacancy has been falling significantly in recent years and stood (at April 2017), at just 5.3%, the lowest level recorded since 2002. In core areas like the city centre, vacancy is even lower at just 4.0%.

And while Hamburg is expected to see new completions and refurbishments of around 200,000 sq m per annum over the next five years, the healthy level of demand means that vacancy rates will remain low. Prime rents are currently at around €25.50 per sqm per month, making Hamburg rents affordable compared with the over big German cities (Frankfurt: € 37.00 per sq m pm / Munich €35.50 per sq m pm) while leaving room for rental growth.

And it’s not just about the city centre, as Hamburg also features a number of dynamic office submarkets. Areas such as the “City-Sued”, the “Extended InnerCity” and “St. Georg” look attractive as office locations when comparing average levels of take-up, vacancy rates , accessibility and general amenities.

Areas such as the “City-Nord” and “Altona”, which is still dominated by larger scale corporate offices, are also seeing a renaissance with increasing refurbishment activity.  

The picture of Hamburg office rents is as sustainable and affordable, particularly when compared to other key European and German cities. Good quality, centrally located office space can still be found for less than €15-€20 per sq m per month and with a range of highly attractive submarkets, the city offers interesting potential for further investments.     

As in many other Western European cities, Hamburg’s prime office yields have seen strong compression in recent years and now stand at 3.25%, among the lowest amongst the “Big7” German markets (Berlin 3.00% / Munich 3.30% / Frankfurt 3.50%). However, yields for modern, average investment grade offices are more in the area of 4.00-4.75% and offer better value in our opinion.

While other German cities like Berlin and Frankfurt hog the headlines, Hamburg has quietly become a city that ticks all the boxes. Friendly, accessible and aesthetically pleasing, with existing infrastructure and a real estate market that offers overseas investors significant opportunity in an ever changing macro landscape, Hamburg’s time in the shadows of its louder neighbours may be coming to an end.