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  • NAI apollo: Frankfurt office lettings market treads water in Q3

NAI apollo: Frankfurt office lettings market treads water in Q3

Frankfurt am Main, 16th October 2019 – The Frankfurt market for office space including Eschborn and Offenbach-Kaiserlei experienced a temporary lull in the third quarter of 2019 following a strong first half, according to the latest report by owner-managed real estate consultancy NAI apollo. Space take-up by tenants and owner-occupiers amounted to 101,400 sqm during this period. “Expected deals, such as the rental of more than 25,000 sqm by the City of Frankfurt in CityWest, have yet to be finalised. Thus the recent quarterly result was about 14 % below the ten-year average for third quarters,” explained Andreas Wende, Managing Director of NAI apollo.

Take-up in the first nine months of 2019 reached a total of 364,100 sqm. Although the figure is more than 17 % below the previous year’s result of 440,900 sqm, it is still almost 5 % above the long-term average of about 347,000 sqm. Lease renewals that took place after office users were unable to find new spaces despite intensive explorations of the market increased significantly to 113,100 sqm, representing the highest volume realised since 2014.

Large deals continue to play a dominant role

Large contracts signed in the second quarter continue to dictate this year’s market development. Higher take-up was registered only in the segment including deals above 10,000 sqm, with an increase of around a fifth compared to the previous year. Take-up fell in all other size Segments.

“In addition to the big deals already recorded, such as the rental by DekaBank Deutsche Girozentrale of 46,200 sqm in the Lyoner Quartier or the lease signed by Randstad for about 14,800 sqm in Eschborn, the rental of almost 7,500 sqm by Check24 at 55 Speicherstraße in the third quarter also counts as one of the largest contract signings during the first nine months of 2019,” said Wende. The rental of 4,750 sqm by WeWork at 19-25 Schillerstraße also took place in the third quarter.

In terms of the industry ranking, “banking, financial services and insurances” remained in a dominant position with a market share of 27.8 % or a take-up volume of 101,200 sqm. The “consulting, marketing and research” sector was a distant second with a 14.5 % share, while “construction and real estate” was in third place with an 11.6 % market share. “The relatively large share attributed to the construction and real estate sector was again primarily owed to take-up by co-worker providers, which rented about 27,000 sqm in the 1,000-sqm-plus segment alone during the first three quarters,” said Dr Konrad Kanzler, Head of Research at the NAI apollo group.

Prime rent rises to third-highest level

“With regard to location, the Lyoner Quartier again accounted for the highest take-up volume of 66,300 sqm because of the Deka deal in the second quarter. Eschborn was next with 42,100 sqm, ahead of the banking district, Westend and the city centre, where similarly high letting performances in the range of 29,400 sqm and 33,700 sqm were achieved,” said Kanzler.

“Rentals in recently completed office developments in the banking district had a positive influence on the prime rent in the third quarter of 2019. In the last three months, the rate rose by €1.00/sqm to €45.00/sqm - an increase of 8.4 % year on year. This means that the prime rent in the Frankfurt office market has increased to the third-highest level ever achieved after 2001 and 2000,” said Kanzler. The average rent currently stands at €22.00/sqm, an increase of 2.3 % over the past 12 months, although it has remained stable of late.

Temporary stabilisation of space availability

In the third quarter of 2019, seven office developments with total space of 146,200 sqm were completed in the Frankfurt market area. The most prominent examples include the Omniturm with more than 45,600 sqm of office space and Marienturm with over 41,000 sqm. A total of 29,100 sqm was removed from the office market, and primarily affected the supply of small spaces. Thus the Frankfurt office market registered a slight net increase in space and currently offers total office stock of about 11.45 million sqm.

By the end of 2019, a further 22,900 sqm of office space should be completed. As things stand, 254,100 sqm are due to come onto the market in 2020, of which more than 60 % are already spoken for.

Office space that is still available in the recently completed projects caused a slight increase in vacancies in the third quarter. That means active market vacancies on the Frankfurt office market — that is, office space that can be occupied within three months of the contract signing — amounted to 720,000 sqm by end-September 2019. “Compared to the previous quarter, market-active vacancies increased by 11,000 sqm. However, this still represents a decline of 106,000 sqm over the past year. The corresponding vacancy rate stands at 6.3 % and is 1.0 percentage point below that of the previous year,” said Wende.

NAI apollo anticipates that some ongoing searches for large office spaces in the final quarter will have an effect on market figures. Vacancies will fall again as a result, and high-priced deals will further push up rents.

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