NAI APOLLO: OFFICE LETTINGS MARKET IN FRANKFURT AM MAIN WITH OUTSTANDING HALF-YEAR RESULT FOR 2019
Major transactions dominate the market
“The result was driven by numerous large-scale deals which were expected at the end of the first quarter and have now been completed. This is also noticeably reflected in the distribution of size categories,” explains Wende. As such, the “> 10,000 sqm” cluster not only represents 27.3 % of the total volume, but has also tripled to 71,700 sqm compared to the middle of the previous year. By contrast, the other four size categories suffered losses.
The largest deal by far during the first six months was DekaBank Deutsche Girozentrale’s rental of 46,200 sqm in a project at Lyoner Straße 13. The next largest transaction was Randstad’s leasing of 14,800 sqm in Frankfurter Straße 100, Eschborn, which was also within the scope of a development.
Accordingly, “banks, financial service providers and insurance companies” not only defended their position as the leading source of demand, but also strengthened their market share. This sector now accounts for a total take-up of 80,600 sqm, which corresponds to a market share of 30.7 %. It is followed by “management consultancy, marketing & market research” with a share of 17.0 % or 44,800 sqm, “public institutions” with 28,200 sqm or 10.7 %, and “construction and real estate” with 24,400 sqm, corresponding to 9.3 %. “In the latter industry, co-working providers account for more than two thirds of take-up,” says Wende.
Prime rent climbs to 18-year high
Deka’s major deal also had a noticeable effect on the geographical distribution of take-up. As such, the Lyoner Quartier has the highest space take-up with 57,500 sqm. This is followed by Eschborn with 38,800 sqm, ahead of the traditional CBD submarkets of Westend, the banking district and the city centre. “This once again demonstrates how important it is to have the possibility to realize large-area developments in the office centres in order to serve price-sensitive demand,” comments Wende.
In the second quarter, project completions led to a significant increase in the rent price level: large-area project leases with an above-average price pushed the average rent up to € 22.00 per sqm, representing a rise of 2.8 % compared to the previous year. “Project leases in premium locations in the banking district have an effect on the prime rent, which has now reached € 44.00 per sqm – the highest value for 18 years. Compared to the second quarter of 2018, the prime rent has increased by 7.3 %,” adds Dr Konrad Kanzler, Head of Research at the NAI apollo group.
Space availability declining
In the second quarter of 2019, the net leased area in the Frankfurt office market dropped by around 14,000 sqm. As a result of this, the currently available office space has declined to a total of 11.33 million sqm. An additional 163,500 sqm is expected to be completed during the second half of 2019, but only roughly a quarter of this is still available. On the basis of current knowledge, a project development volume of 254,200 sqm can be forecast for 2020 as a whole.
The high space take-up led to a further reduction in the vacancy rate between April and June 2019. Therefore, 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, was just 709,000 sqm at the end of the second quarter of 2019. “This corresponds to 6.3 %, which is 1.5 % or 172,000 sqm lower than in the previous year,” explains Kanzler.
NAI apollo expects this high level of market activity in the Frankfurt office letting market to continue over the coming months, which should enable a take-up result similar to that of the previous year. Accordingly, the reduction of vacancy rates and the positive rental price trend are both set to continue.