Frankfurt am Main, 4th January 2019 – The Frankfurt market for office space including Eschborn and Offenbach-Kaiserlei ended 2018 with an historically high take-up volume, according to the latest analysis by owner-managed real estate consultancy NAI apollo – partner of the NAI apollo group. Office space take-up for the year as a whole amounted to 622,100 sqm, which represents the second-highest result within the past 15 years after the record year of 2017. At the same time, the take-up volume was more than 30 % above the long-term average (475,500 sqm). “Once again, the office lettings market in Frankfurt achieved a very strong result in the past year, thus maintaining the clearly positive trend that led to the record result in 2017”, said Andreas Wende, Managing Director of NAI apollo. In the period from October to December 2018, take-up by tenants and owner-occupiers amounted to 181,200 sqm. Although the figure for the fourth quarter of 2018 was below the exceptional result of 279,400 sqm that was recorded at the end of the previous year, it still exceeded average take-up (about 140,000 sqm) for final quarters of the past 10 years.
2018 characterised by high number of deals
“The number of contract signings again increased significantly, which attests to the market’s strong momentum”, said Radomir Vasilijevic, Director Office Letting at NAI apollo. The figure increased from 712 in 2017 to 744 deals in 2018. As was also the case in the previous year, lease renewals by tenants following unsuccessful attempts to secure new premises still accounted for a moderate take-up of about 50,000 sqm.
The vibrancy of the Frankfurt office market is largely influenced by the strong lettings volume in the segment for smaller units. Take-up in the “sub-1,000-sqm” segment increased by 8.1 % to 220,400 sqm compared to the previous year. However, volumes fell in the other four size categories above 1,000 sqm identified by NAI apollo. “This was to be expected in view of the strong take-up in the previous year”, according to Vasilijevic.
The largest deals during 2018 included the 36,100 sqm leased by Commerzbank in the Cielo office block at 100, Theodor-Heuss-Allee; the contract signed by Frankfurter Allgemeine Zeitung for 24,000 sqm in a project development at 92, Europa-Allee; 15,800 sqm leased by Deloitte in the Zebra development at 91-93, Europa-Allee; and the 9,200 sqm leased by Spaces in Global Tower at 32-36, Neue Mainzer Straße. NAI apollo provided advisory services to Spaces during the signing of this lease contract.
Prime rent rises to above €43.00/sqm
The “banks, financial service providers and insurance companies” sector continued to dominate the market in 2018, accounting for 141,200 sqm or a 22.7 % market share. “Real estate and construction” was in second place with 13.9 % or 86,300 sqm, of which co-working providers accounted for more than half.
In terms of location preferences, office users continued to focus on the Central Business District (CBD) with take-up of 382,000 sqm (61.4 % market share). Regarding the individual sub-markets, the banking district and City West remained popular with shares of 16.2 % and 10.5 % respectively.
“Further high-priced lease contract signings in project developments also drove up rents during the fourth quarter. As a result, the prime rent now stands at €43.20/sqm, which represents the highest value since 2001. Compared to the previous year, the prime rent has increased by a further 7.2 %”, said Dr Konrad Kanzler, Head of Research at the NAI apollo group. Over the same period, the average rent increased by 4.8 % to €21.70/sqm.
Reduction in vacancies continues apace
The completions volume in the fourth quarter of 2018 reached a total of 22,900 sqm of office space. Only 76,400 sqm was ultimately completed in 2018 as a whole owing to building delays. After taking into account the removal of a similar volume of space from the office market, office stock amounted to 11.346 million sqm at the end of the fourth quarter.
“As things stand, a completions volume of 177,200 sqm can be expected in 2019. Only around a third of this is still available”, said Kanzler.
Market-active vacancies on the Frankfurt office market — that is, office spaces that can be occupied within three months of the lease contract signing — also experienced a considerable decline during the fourth quarter of 2018. “At the end of 2018, only 743,000 sqm of office space was available to the market at short notice. This represents the lowest level since 2001, when short-term vacancies amounted to 400,000 sqm. Thus the vacancy rate has dropped 2.1 percentage points to 6.5 % compared to the previous year’s figure”, said Vasilijevic.
The reduction in office space available at short notice in the CDB was particularly striking. “In Frankfurt’s CBD, the vacancy rate has fallen by 7.1 percentage points over three years to reach 6.2 % at the end of 2018. A number of sub-markets within the CBD are effectively now at full occupancy. For instance, the vacancy rate in the banking district stood at 9.5 % in 2015, but since then has fallen to just 2.6 %”, said Kanzler. However, significant declines in vacancies are also evident in non-central locations such as the Niederrad office centre, where the vacancy rate has fallen from 19.4 % to 10.6 % in three years and absolute vacancies have almost halved.
Positive market outlook for 2019
According to NAI apollo, market conditions suggest that the current positive development is set to continue during 2019. “In addition to above-average take-up, we expect to see a further decline in space availability and rising rents on the office market”, concluded Vasilijevic.