Top 5-office-letting-markets off to a strong start to the year
Year-on-year take-up up rises 6.5 percent to around 848,000 million sq m
Ongoing decline in vacancies – vacancy rates partly at critical levels below the liquidity reserve
More than 50 percent of office space pipeline until the end of 2019 already absorbed from the market
A good 848,000 sq m of office areas were taken up in the Top 5-locations in the first months of the current year, representing an increase of 6.5 percent compared with the prior-year period. Particularly strong take-up in Hamburg (164,000 sq m, up 53 percent) and Munich (262,400 sq m, up 36 percent) contributed to this result. By contrast, Berlin (200,100 sq m), Düsseldorf (111,400 sq m) and Frankfurt (110,100 sq m) reported lower take-up than in the first quarter of 2016. Munich therefore reported the highest take-up, taking the lead and pushing Berlin into second place. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE.
The office letting market in the Top 5-locations got off to a very good start in the first three months of the current year. Germany’s economic fundamentals continue to be strong, and the sentiment in the individual sectors has recently improved further. The number of white collar workers in the country’s service industry and in its public service sector has therefore risen, triggering brisk momentum in the letting market.
The robust economy and the high level of confidence of office space users in the future economic development have boosted letting performance substantially – and this is without Brexit-induced transactions. Moreover, since the year began we have registered many specific requests in the financial center of Frankfurt in particular by London-based banks and financial service providers. These companies need to prepare themselves for the time after the United Kingdom has finally exited the European Union in order to secure untrammelled access to the European domestic market. In this respect, we anticipate firm relocation decisions in the coming six to twelve months.
TMT continues to be a strong driver of take-up
With a good 19 percent in the overall take-up, the TMT sector (telecommunications, media and technology) again made a major contribution to the take-up result. Companies in this sector drove take-up in Munich (28 percent) and Frankfurt (20.5 percent) in particular. Similarly, a high 17 percent in the Düsseldorf market was attributable to the TMT sector. This industry therefore lagged the financial sector that generated one third of the take-up through two large-scale transactions, among others. Averaged over the Top 5-locations, a good nine percent was accounted for by the financial sector, also including the leasing by HSBC Trinkaus & Burkhardt AG in Düsseldorf accompanied by CBRE in a project that, with an area of more than 20,000 sq m, represented the second-largest leasing transaction in the first quarter. The public sector was also an important driver with a good 15 percent of the overall volume, including owner occupation by the Federal Authority for Real Property Administration (Bundesanstalt für Immobilienaufgaben) in Berlin in the Mediaspree submarket that constituted the largest deal in the first quarter.
Vacancy rate still on the decline – liquidity threshold in Munich and Berlin already undercut
The proportion of vacant office space in the overall stock across all locations continues to decline. In absolute figures, vacant office space contracted by more than 17 percent to 4.2 million sq m.
In Munich and Berlin, vacancy rates currently stand at 3.7 and 4.2 percent respectively, which is too little to guarantee healthy fluctuation in the market and to provide potential for company relocations and expansion of space. The market in Hamburg, where only 5.3 percent of the building stock is vacant, is also close to this threshold.
High-quality office space is scarce, above all in the popular downtown locations of major cities, so that the trend in user demand for contemporary and efficient office space in submarkets in and around city centers is set to continue.
According to information currently available, somewhat more than half of new or completely refurbished office space to be released on the market through to the end of 2019 is currently still available. However, given the consistently high demand for cutting-edge office space that can accommodate changing user requirements regarding the implementation of contemporary ways of working this proportion is set to decline steadily. Moreover, in most of the Top 5 locations, the completion volume also rose again in the first quarter of the year. With new or completely refurbished office space in the Top 5-locations totalling a good 216,000 sq m, significantly more space came onto the market in the first three months of this year than in the year-earlier period (increase of 55 percent). A great deal of space was completed above all in Munich and Berlin – over 70,000 sq m in each city – that was, however, only partly able to mitigate the tight supply situation. In Berlin, only 24 percent of the space was still available in the market upon completion, compared with still 34 percent in Munich. As a consequence, and also due to planned office space, excess demand can be eased somewhat but not reduced.
Prime rents still in an uptrend, particularly in Berlin
With ongoing demand running high, particularly for prime, contemporary office space, rent levels in prime locations situated in the top centers continued to rise in the first quarter as well. With a sustainably achievable prime rent of €39.50 per sq m and month, Frankfurt was the only top location with no year-on-year increase. It nonetheless remains the most expensive. The sharpest rise of 10 percent to €27.50 per sq m and month was registered in Berlin.
The weighted average rent that factors in the transactions of the past twelve months shows a slightly more uneven picture. While in Düsseldorf, Hamburg and Frankfurt, this figure remained around the year-earlier level, the market in Berlin reported an even greater increase of almost seven percent than it already did at year-end 2016. Only Munich saw a year-on-year decline of 3.6 percent in weighted average rent as, above all in recent quarters, several transactions were concluded involving large surface areas in the city outskirts and peripheral locations, as well as leasing by price-sensitive users, such as the public sector, in properties with fewer amenities. Rents continue to rise, however, in good properties in top locations although supply here is so short that fewer deals can be transacted.
Outlook: workplace strategies increasingly moving into user focus due to rising rents and scarce supply
“The German economy continues its upswing, with positive stimulus for the country’s letting market. Office take-up in the Top-5 locations can generally be expected to remain around the level of the long-term average. Against the backdrop of rising rents and increasingly scarce supply, users are paying more attention to optimizing space and using it more efficiently in the context of a workplace strategy with the aim of not having to upsize despite an increase in employees,” says Linsin.
Source: CBRE Research, Q1 2017
Source: CBRE Research, Q1 2017
Head of Office Leasing Germany
+49 (0)69 17 00 77 0
Head of Research Germany
+49 (0)69 17 00 77 663
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.