Frankfurt am Main office market: space take-up reaches highest level since 2007

NAI apollo group publishes 2016 annual report on the Frankfurt office lettings market:

• Space take-up increased by more than a third compared to the previous year to achieve best result since 2007
• Take-up doubled in 5,000 sqm-plus segment
• Vacancy rate fell to 10.8 %
• Prime rent remained stable at €39.00/sqm; average rent increased to €19.30/sqm
• Outlook for 2017: positive take-up development and rental growth potential

Frankfurt am Main, 03.01.2017 – Business remained brisk on the Frankfurt market for office space (including Eschborn and Offenbach-Kaiserlei) in the final quarter of 2016. According to the latest analysis by real estate consultancy network NAI apollo group, a large number of contract signings took place during this period and thus ensured that take-up growth exceeded the positive results from the previous quarters. "Space take-up by tenants and owner-occupiers amounted to 193,700 sqm in the last three months of 2016. Compared to the previous year, this represents an increase of 79,200 sqm or 69.2 %," according to Radomir Vasilijevic, Head of Office & Retail Letting at NAI apollo group. Total office space take-up in 2016 as a whole reached 540,900 sqm, which was not only 37.3 % higher than the previous year's level of 394,000 sqm but also constituted the best result since 2007 (547,000 sqm).

A number of office tenants ultimately decided to renew their existing leases after actively exploring the market in 2016, which resulted in a total of 73,700 sqm being excluded from the overall take-up volume. This figure has fallen continually compared to the last two years, reflecting the increased willingness of companies to move offices.
Take-up growth on the Frankfurt office market was primarily caused by the re-emergence of large deals. In 2016, take-up generated by deals for units larger than 5,000 sqm doubled to 172,900 sqm compared to 2015. Similarly strong growth was registered for units of "2,501-5,000 sqm" in size, where the volume increased by 75.8 % to 100,000 sqm compared to 2015.

Large contract signings in the fourth quarter included the Deutsche Bahn AG deal for 45,000 sqm of office space in the "Grand Central" project. Together with an additional five lettings for units larger than 5,000 sqm, the total volume in this segment amounted to 89,400 sqm in the last three months alone.

Large lettings drive up average rental price

"The sector comprising ‘banks, financial service providers and insurers' continued to play a dominant role in 2016 with take-up of 123,600 sqm or a 22.8 % market share, which was also higher than the previous year's share of 19.2 %," said Radomir Vasilijevic. The ‘communication and IT sector' was in second place with a 10.9 % share or 58,900 sqm. The ‘traffic, transport and logistics' sector recorded the strongest growth. This was mainly due to the Deutsche Bahn contract, which contributed towards a more than fivefold increase in the volume to 57,400 sqm (10.6 % share) compared to 2015.

"In terms of location, office users still tended to favour the Central Business District, which accounted for 316,200 sqm of the total volume or a 58.5 % share. There was also evidence of strong demand for space in office centres in the fourth quarter," said Dr. Konrad Kanzler, Head of Research at NAI apollo group. In 2016 as a whole, take-up of office space in these locations almost doubled to 114,300 sqm or a 21.1 % market share compared to 2015.

Large deals in project developments, such as the Deutsche Bahn contract, affected rental price levels in the fourth quarter of 2016. The average rent increased by €0.20/sqm to €19.30/sqm, while the prime rent was unchanged at €39.00/sqm.

Further decline in vacancies

The completions volume amounted to 17,500 sqm within four project developments in the fourth quarter of 2016. However, the removal of space was significantly higher at 46,600 sqm, of which almost 70 % was due to the conversion of office space into housing or hotels. Over the year as a whole, space removals far exceeded completions at 155,000 sqm compared to 126,200 sqm of new office space. As a result of this net loss of space, total office stock stood at 11.493 million sqm by the end of the fourth quarter.

In 2017, total projected completions currently amount to 105,200 sqm of office space with a pre-letting quota of 82.8 %. Completions of 146,600 sqm are forecast for 2018, of which 44.6 % is still available on the market.

There was also a sizeable reduction in market-active vacancies on the Frankfurt office market - i.e., office space that can be occupied within three months after signing a lease contract - in the fourth quarter of 2016. "At the end of 2016, 1.246 million sqm of office space distributed across 477 buildings was available at short notice. This equates to a vacancy rate of 10.8 %, which has fallen by 0.6 percentage points within the last three months," said Dr. Konrad Kanzler.

While the highest take-up volume within the past nine years was registered in 2016, the NAI apollo group still expects to see further lettings growth in 2017 - also taking account of the possible consequences of Brexit. "It is very likely that the volume will again exceed the long-term average of 458,000 sqm. Hence the decline in vacancies is expected to continue, creating growth potential for rental prices," predicts Radomir Vasilijevic.