- First-three-quarter take-up of 440,900 sqm one of best results since data collection began
- Growing number of deals signals positive market dynamics
- Banks, financial service providers and insurers dominate take-up activity
- Vacancies amount to only 826,000 sqm
- Rental prices characterised by further growth
- Outlook for 2018 as a whole: above-average space take-up, continuous reduction in vacancies and further rental price growth
Frankfurt am Main, 1st October 2018 – The Frankfurt market for office space including Eschborn and Offenbach-Kaiserlei continued to perform strongly in the third quarter of 2018 following the extremely positive first half of the year, according to the latest analysis by owner-managed real estate consultancy NAI apollo – partner of the NAI apollo group. Space take-up by tenants and owner-occupiers reached 187,300 sqm, meaning that the period from July to September 2018 represents the strongest third quarter in the past ten years. The already very good result of the prior year was exceeded by 1.8 % (Q3 2017: 183,900 sqm). “Space take-up for the first three quarters of 2018 amounted to 440,900 sqm, which is one of the best results we have seen since we started to collect data. It has risen 2.0 % or 8,700 sqm above the very high previous year’s value,” said Radomir Vasilijevic, Director Office Letting at NAI apollo.
A year influenced by strong market dynamics
The number of deals provided even more tangible evidence of the strong market momentum, rising from 530 in the first three quarters of 2017 to 576. “We noted there were a high number of lease contract signings while lease renewals had less of an impact,” said Radomir Vasilijevic. At the end of the third quarter, renewals accounted for 36,000 sqm.
Compared to the very good previous year, the lettings volume was particularly influenced by an increase in the number of contract signings within the <1,000-sqm and 1,000 sqm-2,500sqm segments, at 12.5 % and 6.4 % respectively. The largest deals in the year to date include the rental by Commerzbank of more than 36,100 sqm in Cielo (100, Theodor-Heuss-Allee 100), the lease signed by Frankfurter Allgemeine Zeitung for 24,000 sqm in a project development at 92, Europa-Allee, and the deal completed by Spaces for 9,200 sqm in Global Tower (32-36, Neue Mainzer Straße). NAI apollo acted as consultant to Spaces in the latter deal.
Banks, financial service providers & insurers form the largest user group
“In the third quarter of 2018, a number of banks rented new premises. Thus the banking, financial services and insurance sector played an even stronger role than in the first half of the year, increasing their share from 20.2 % at the end of June to 25.4 % or 111,900 sqm,” said Dr. Konrad Kanzler, Head of Research at the NAI apollo group. As before, the construction and real estate sector, boosted by the Spaces contract, was ranked second and accounted for a 15.8 % market share (69,800 sqm) at the end of the third quarter.
More than two thirds of space take-up took place in the Central Business District (CBD). The most significant sub-markets within the CBD are the banking district and City West, with market shares of 19.2 % (84,500 sqm) and 13.7 % (60,300 sqm) respectively.
“Rental prices have continued to rise owing to high-priced rentals in project developments and other areas. Thus the prime rent increased by €0.50/sqm to €41.50/sqm compared to the previous quarter, and is only €0.50 below the peak value of the last 15 years. The space-weighted average rent increased by a further €0.10 on a quarterly basis to €21.50/sqm,” said Dr. Konrad Kanzler.
Vacancies fall further
The office completions volume amounted to 32,500 sqm for the third quarter of 2018, while almost the same volume (29,100 sqm) was removed from the office market. As a consequence, office stock was broadly unchanged at 11.34 million sqm. “For the fourth quarter of 2018, we expect additional 64,100 sqm to be completed. However, only 2,900 sqm of this volume is still available. In 2019, 180,200 sqm of office space will in all probability come onto the market. The pre-letting quota here stands at 49 %,” said Radomir Vasilijevic.
The very positive lettings performance and high pre-letting quotas in project developments brought about a further significant decline in vacancies in the period from July to September 2018. “Market-active vacancies on the Frankfurt office space market — that is, office spaces that can be occupied within three months of the contract signing — fell by another 55,000 sqm to 826,000 sqm,” said Dr. Konrad Kanzler. The resulting vacancy rate is 7.3 %, which fell 0.5 percentage points within the last three months.
Annual result expected to be far above average
“Upcoming lettings in the fourth quarter will help maintain the positive market development, and we expect to see above-average space take-up in 2018. At best, we will even experience one of the three strongest performances of the last 25 years. In line with this development, vacancies will continue to decline and rental prices will increase further,” summed up Radomir Vasilijevic.