NAI apollo: Frankfurt office lettings market achieves third-best year in the current cycle
Frankfurt am Main, 27th January 2020 – In 2019 the Frankfurt market for office space including Eschborn and Offenbach-Kaiserlei registered a total take-up of 573,800 sqm by tenants and owner-occupiers, according to the latest analysis by owner-managed real estate consultancy NAI apollo.
“Take-up on the office lettings market was almost a fifth above the ten-year average of around 485,000 sqm for the years 2009 to 2018, making 2019 the third-best year in the current cycle,” said Andreas Wende, managing director of NAI apollo.
The year also ended on a high note. Take-up in the period from October to December amounted to 209,700 sqm, ensuring that the fourth quarter of 2019 represented one of the strongest final quarters overall. This was mainly owing to seven large contract signings that were finalised in the last three months.
“The very good lettings volume in 2019 was also accompanied by a high level of contract renewals following an active exploration of the market. The 128,000 sqm that were involved here attest to the generally strong market dynamic and could also have been included in the take-up volume,” said Wende.
Large contract signings continue to dominate the market
The largest deals of the year still included the lease signed during the second quarter by DekaBank Deutsche Girozentrale for more than 46,200 sqm in the Lyoner Quartier. In addition, the City of Frankfurt rented about 26,500 sqm at 27-37 Solmsstraße for the civic centre and ING-DiBa secured around 26,100 sqm of office space at 44 Theodor-Heuss-Allee. Both buildings are situated in City West.
Owing to these and other major contract signings, deals larger than 10,000 sqm registered the highest growth compared to the previous year (+80.8 % to 185,900 sqm) as well as the second-largest share of take-up. Spaces below 1,000 sqm accounted for the largest share of 194,000 sqm. In addition to the strong demand for space from “banks, financial services and insurances”, which generated total take-up of 183,000 sqm, the public sector was one of the most active industries with 67,700 sqm.
City West is strongest sub-market – prime rent rises further
“A large number of contract signings, including those for large spaces, gave the City West sub-market pole position at the end of the year. Space take-up amounted to 74,500 sqm in this location, putting it ahead of Lyoner Quartier with 71,000 sqm,” said Dr. Konrad Kanzler, Head of Research at NAI apollo group. This is followed by the banking district with 65,700 sqm, Westend with 56,900 sqm and Eschborn with 47,400 sqm.
Rental prices continued to rise in the last three months of 2019 and reached a new 22-year peak. The prime rent is now quoted at €45.50/sqm, an increase of 5.3 % over the course of the year. The average rent increased by 2.8 % to €22.30/sqm.
Further decline in space availability
As a result of project delays throughout 2019, the completions volume amounted to around 132,900 sqm of office space in the Frankfurt market area, of which 20,400 sqm came onto the market in the fourth quarter. Only 15 % of the total annual volume is still available. After allowing for the removal of space from the office market, total office stock amounted to 11.43 million sqm at the end of the year.
“In the next two years total office space completions are estimated to reach around 513,300 sqm, of which only 40 % is still available for rent. The corresponding value for 2020 is 307,200 sqm. As things stand, around 206,000 sqm should come onto the market in 2021,” said Kanzler.
Vacancies were still in decline at the end of 2019, and available space fell for the eighth year in succession. As a result, market-active vacancies on the Frankfurt office space market — that is, office space that can be occupied within three months of signing the lease — amounted to 693,000 sqm at the end of December 2019. Compared to the previous year, this has decreased by 50,000 sqm. The current vacancy rate is only 6.1 %, which is 0.4 percentage points below the 2018 value. In the popular Central Business District, short-term space availability fell by a further 1.1 percentage points year-on-year to reach 5.1 % by the end of 2019. The situation in the “banking district” sub-market of the CBD is particularly tense with a vacancy rate of only 2.2 %.
For 2020, NAI apollo predicts that searches for large spaces as well as the active demand for small spaces will lead to a slightly above-average take-up performance. Accordingly, the vacancy rate should gradually stabilise and rents are expected to level off at a high level.