NAI apollo: Office letting market in Frankfurt am Main with a slow start to 2019

Small leases characterise market development

“The majority of market activity in the first quarter was in the sub-1,000 sqm sector. In this size category, the take-up volume totals 44,200 sqm, or a market share of 49.6%,” explains Christian Dörner, Head of Office & Retail Letting at NAI apollo. All size categories are equally affected by tangible take-up losses. Compared to the first quarter of 2018, these range from only 9.8% for deals under 1,000 sqm to 63.9% in the 5,001 - 10,000 sqm size category.

“The largest deals include the leasing of 10,700 sqm by the Gesellschaft für Internationale Zusammenarbeit (GIZ) [Society for International Cooperation] in Ludwig-Erhard-Straße 30-34 in Eschborn, approximately 5,300 sqm by KPMG in the ‘Squaire’ at the airport, as well as around 3,500 sqm by DXC Technology Deutschland in Alfred-Herrhausen-Allee 3-5, also in Eschborn,” says Christian Dörner.

The industry demand underlines the familiar picture of the majority of space take-up in Frankfurt being assumed by “banks, financial service providers and insurance companies”, with this sector being accountable for the largest take-up share of 20.7% in the banking metropolis. This sector is followed by “management consultancy, marketing & market research” with a share of 18.2%, “communications & IT” with 12.9% and “public institutions” following behind with a market share of 12.5%. A clear reduction in take-up has been recorded for almost all named user groups, with “public institutions” the only group to record an increase of 78.4% compared to the same period of the previous year, a result due to the GIZ deal.

Prime rent clearly above the level of the previous year

“Thanks to some large deals in Eschborn, the main site of office centres, which includes the submarkets of Offenbach-Kaiserlei, the Lyoner Quartier in Niederrad, the Mertonviertel and Eschborn, has been able to record a strong increase in demand to claim a market share of 25.5%. Despite this, the CBD still dominates market activity with 45,800 sqm or 51.4%. Among the individual submarkets, the stand-out performers include Eschborn with 19,100 sqm, the banking district with 12,500 sqm, the city centre with 11,600 sqm and the Westend with 10,600 sqm,” says Dr Konrad Kanzler, Head of Research at NAI apollo group.

“Owing to the moderate take-up activities and no notable high-priced leases in the first quarter of 2019, the prime rent level remains stable for the time being at 43.20 euros/sqm, an increase of 6.7% compared to the previous year. We expect an increase to over 44.00 euros/sqm over the further course of the year,” continues Dr Konrad Kanzler. The average rent also remains stable compared to the end of 2018 at 21.70 euros/sqm. Over the last twelve months, this means an increase in rent of 1.9%.

Availability of space continues to decrease

Although the completion pipeline of the Frankfurt office market is busy in 2019 with 170,200 sqm of office space, no property has been completed in the first three months of the year. Space removals only total around 3,000 sqm. Correspondingly, the office space stock at the end of the first quarter remains almost constant at 11.34 million sqm.

According to current knowledge, the forecast is for around 462,600 sqm to be completed within the next two years, while the pre-letting quota is already at 60%. Of the newly built space expected in 2019, only 39,700 sqm or 23.3% are still available.

“The total amount of empty space available on the Frankfurt office letting market, meaning office space that can be occupied within three months of signing the lease, is just 742,000 sqm as of 31 March 2019. Over the course of the last twelve months, this figure has therefore sunk by an absolute value of 174,000 sqm. The current vacancy rate at the end of the first quarter of 2019 is 6.5% and is therefore 1.5% above the previous year’s value,” explains Christian Dörner.

According to estimates from NAI apollo, the Frankfurt office market will continue to pick up considerable speed throughout the course of 2019 and will probably once again achieve an above-average office space take-up based on the forecast of the entire year. As a result, a continued reduction in available space and an increase in rent can be assumed.