Companies from the TMT sector are increasingly establishing themselves as an essential occupier group for office real estate – particularly in the German start-up capital Berlin. This is the result of the latest study on the German TMT sector undertaken by real estate services company CBRE. In total companies from this sector accounted for one fifth of the aggregate take-up of the last five years in Germany.
“This development underlines the significance of the digital economy in Germany”, says Jan Linsin, Head of Research at CBRE Germany. According to the Monitoring-Report of the Federal Ministry of Economic Affairs and Energy the ICT sector is one of the main drivers of innovation in the German economy. Since the financial crisis this industry was able to gradually increase its gross value added (GVA) to a total of roughly EUR 89 billion in 2013. With a contribution to commercial GVA of 4.7% in each of the three years from 2011 to 2013 the ICT sector shares the top rank with the automotive manufacture industry (4.7%) and lies ahead of mechanical engineering (4.5%).
Strong office leasing take-up from the TMT sector the Berlin
Berlin is progressively evolving into the capital of the creative economy and the German start-up ecosystem. In comparison with the other German markets Berlin registers a disproportionately high share of TMT take-up – almost one quarter of the total cumulated take-up between 2010 and 2014. In the first quarter of 2015 the sector even accounted for approximately 40% of all leasing activity. The positive development of Berlin’s GVA also underpins the strength of the internet economy. According to a study from the Investitionsbank Berlin’s (IBB) its share accounted for 4.2% of the entire economic output of Berlin in 2013 even ahead of Berlin’s fairly dynamic construction sector. The capital offers a very good overall infrastructure which provides excellent conditions for businesses and has played an essential role in the sustainable growth of the TMT sector by attracting tech talent from all over the world. Leasing activity in the TMT sector has nearly tripled measured by the number of registered leases since 2010 contributing significantly to the absorption of vacant office space.
TMT companies drive rents
While rents paid by TMT companies still lie slightly below the market average, rental levels across the sector are rising quickly. “Companies from the TMT sector are increasingly considered to be some of the major tenants in top locations and hotspots and to be a substantial driver of rental growth”, says Matthias Hauff, Head of Agency Berlin at CBRE. “One of the main reasons is the fast growth of those companies, which need larger office spaces rather short-term and are willing to pay more for them.”
Typically TMT companies choose non-CBD office locations within the perimeter of the “S-Bahnring” (the urban railway loop). The strongest concentration lies in the office submarket City-East. Mitte, Mediaspree and Kreuzberg are the most sought after among the most important clusters (MICs) and are all located within that submarket. Apart from global players such as Microsoft or Amazon publicly traded Berlin based companies Rocket Internet or Zalando as well as numerous start-ups are located in those three clusters. The majority of incubators and accelerators, where start-ups emerge and are boosted, as for example the Betahaus in Kreuzberg, are also located here.
Emerging clusters such as the EUREF-Campus and Adlershof are also in the TMT focus
Due to the agglomeration of IT firms as well as companies from areas like mobility or renewable energy but also scientific and academic research facilities the development areas EUREF-Campus and Adlershof stand out as TMT clusters because of a stronger focus on Industry 4.0 or the Internet of Everything. Influenced by the two major Universities, the Technical University Berlin (TUB) and the University of the Arts (UdK) around the Ernst-Reuter-Platz in the City-West submarket this area is a further magnet for tech firms and incubators with a stronger focus on ICT. The eastern districts within the S-Bahn loop and Kreuzberg, which are also some of the most sought after residential neighborhoods among “new” Berliners register a particularly high density of TMT companies as a share of overall office leasing activity.
Disproportionate rental growth in non-CBD and peripheral submarkets
Non-CBD (City-East, City-West) and peripheral submarkets registered significant rises of average rents between 2005 and Q1 2015 with increases of 43% and 70% respectively. This drives demand among investors and recently led prime yields in non-CBD submarkets to compress to 4.90% and in peripheral submarkets to 6.25%. “Buildings in micro locations and clusters with a high TMT density offer particularly high value-add potential and are becoming increasingly interesting for investors familiar with the Berlin market who have recognized the importance of the TMT sector for Berlin’s economy” explains Fabian Huether Head of Investment at CBRE in Berlin.
TMT companies are not contenders for new development yet
The TMT sector’s impact on new office developments is rather moderate at best so far. To date tenants from this sector are generally considered to lease in existing buildings. “Because of the highly dynamic business model and the trial and error approach of early stage start-ups the planning horizon is too short as to be considered potential tenants office developers” according to Hauff. “However, with increasing maturity they become interesting for developments of office buildings or campuses like the Factory Berlin in Mitte completed in 2014 or the campuses of Rocket Internet or Axel Springer, both located in Kreuzberg and currently in the planning stage.”
View Jan’s biography here.