NAI apollo real estate: Office lettings market in Frankfurt am Main on course for growth

• Space take-up well above previous year's level and also exceeds 10-year average
• CBD remains popular with users with 60.9 % share of take-up
• Lettings almost double in 5,001 sqm - 10,000 sqm segment
• Vacancy rate falls to 10.0 %
• Average rent increases to €19.50/sqm; prime rent unchanged at €39/sqm
• Outlook for 2017: Space take-up expected to exceed 550,000 sqm with a further reduction in vacancies and rising rents

Frankfurt am Main, 03.07.2017 – The Frankfurt market for office space lettings, including Eschborn and Offenbach-Kaiserlei, maintained its positive take-up performance in the second quarter of 2017 after its previous strong start to the year. This was revealed by the latest study conducted by real estate consultancy NAI apollo real estate - a partner of the NAI apollo group. From April to June, space take-up by tenants and owner-occupiers reached 123,800 sqm and thus exceeded the year-ago level by 22.8 %. "In the first half of 2017, space take-up amounted to 248,300 sqm in total. This not only surpassed the same period of 2016 by 12.6 %, but also beat the average for the last 10 years by 15.7 %," said Radomir Vasilijevic, Head of Office & Retail Letting at NAI apollo real estate.

Most size categories were affected by this strong take-up growth. Only the "2,501 - 5,000 sqm" and "10,000-sqm plus" segments registered a reduction in volumes compared to the previous year. The remaining categories recorded growth rates of between 2.8 % and 91.3 %. The number of deals also increased. This was especially the case in the "5,000 - 10,000 sqm" segment, where contracts more than doubled from four in 2016 to nine in the current year.

Large contracts completed in the second quarter of 2017 included this year's first deal to exceed 10,000 sqm. Law firm Clifford Chance leased around 11,800 sqm on JunghofPlaza in the banking district (Bankenviertel). In addition, Axa Versicherung signed a contract for 8,000 sqm in a project development at 316 Berliner Straße in the Offenbach-Kaiserlei sub-market.

The third-largest deal in the quarter also took place in the banking district and saw the Bundesbank extend its existing space in Trianon by a further 7,000 sqm.

Banks, financial service providers and insurers remain the biggest consumers
"As a result of the large contract signings, banks, financial service providers and insurers retained the number one spot in the industry ranking. This group accounted for take-up of 43,200 sqm or a share of 17.4 %," said Dr. Konrad Kanzler, Head of Research at NAI apollo group. "Management consultancies, marketing and market research" occupied second position with 14.3 % or 35,500 sqm, while "communications & IT" accounted for 30,800 sqm or 12.4 % of the volume.

The CBD remained the most popular location for office users and increased its market share significantly from 51.3 % in the previous year to 60.9 %. In terms of the individual sub-markets, the banking district was still the dominant area with 47,700 sqm of take-up, ahead of Westend with 31,100 sqm and the station district (Bahnhofsviertel) with 21,500 sqm.

Large-scale and expensive lease contracts in the banking district and Westend pushed up the space-weighted average rent from €19.30/sqm in the previous quarter to €19.50/sqm in the second quarter of 2017. The prime rent was unchanged at €39.00/sqm.

Vacancies continue to decline
The completions volume in Frankfurt amounted to a total of 40,800 sqm in the second quarter of 2017 and was distributed between two projects. However, space removals reached a higher volume of 78,800 sqm, of which almost 60 % was converted into residential space. As a result, total office stock declined to 11.39 million sqm.

A further 42,800 sqm of office space is expected to be completed in the second half of 2017. Around 166,800 sqm is currently in the project development pipeline for 2018, of which 49 % is still available.

In the April to June period, market-active vacancies on the Frankfurt market for office space — that is, office space that can be occupied within three months of the contract signing — fell markedly for the fourth time in succession. At the end of the second quarter, some 1.144 million sqm of office space was available at short notice. "The resulting vacancy rate of 10.0 % has therefore declined by a further 0.4 percentage points within the last three months. Compared to the previous year, vacancies have declined by 1.8 percentage points or approximately 216,000 sqm of office space due to the very strong take-up growth in the past 12 months," said Dr. Konrad Kanzler.

"The positive development in the first half of 2017 combined with upcoming lettings also point to an equally good performance in the second half of 2017. Furthermore, the first contracts to be signed as a result of Brexit are expected to take place this year, triggering additional take-up. A double-digit number of banks have already cited Frankfurt as a future location," said Radomir Vasilijevic. According to estimates by NAI apollo real estate, take-up this year could exceed 550,000 sqm. Consequently, vacancies will also continue to fall and rents continue to rise.