NAI apollo: Office lettings market in Frankfurt with highest take-up since 2008

• Half-year take-up of 253,600 sqm is 15 % above the 10-year average
• Co-working suppliers provide boost to lettings volume in Q2
• Higher number of deals
• Vacancies at lowest level since 2001
• Further increase in rental prices
• Outlook for 2018 as a whole: Take-up to reach at least 550,000 sqm, continued reduction in vacancies, further increase in office rents

Frankfurt am Main, 02.07.2018 – The Frankfurt office letting market, including Eschborn and Offenbach-Kaiserlei, showed an overall positive development in the first half of 2018, according to the latest analysis by owner-managed real estate consultancy NAI apollo – partner of the NAI apollo group. Take-up by tenants and owner-occupiers within the first six months of the year amounted to 253,600 sqm, exceeding last year’s very good figure (248,300 sqm) by 2.1 %.

“The result is not only 15 % above the 10-year average, which now amounts to 220,800 sqm, but also represents the second-highest half-year take-up volume in this period,” said Radomir Vasilijevic, Director Office Letting at NAI apollo. The period from April to June 2018 contributed 116,800 sqm to the half-year result, and therefore ranks behind both the previous quarter’s result of 136,800 sqm as well as the Q2 2017 figure of 123,800 sqm. “A significant market increase is evident in parallel with an increase in the number of deals,” explained Radomir Vasilijevic. The total number of deals increased by 9 % to 365 in the first six months compared to the corresponding period of 2017.

Co-working providers heavily influence market development
The largest deals completed during the second quarter of 2018 include the lease by the Federal Republic of Germany - Finance Agency (Bundesrepublik Deutschland - Finanzagentur GmbH) of 8,250 sqm at 35, Olof-Palme-Strasse in the Mertonviertel quarter as well as the lease contract on 6,530 sqm signed by TOG The Office Group in the Oper46 building at 46, Bockenheimer Anlage. The third-largest deal in the quarter was transacted by the KfW banking group in Centurion at 112, Theodor-Heuss-Allee. A total 5,340 sqm of office space was rented here.

“In addition to the lettings listed above, a number of contracts were signed by co-working providers, whereby the “construction and real estate” sector increased its market share from 9.3 % in the previous year to 16.4 % at present. In the second quarter, these users were responsible for over 40 % of take-up in the segment of spaces larger than 1,000 sqm,” said Dr Konrad Kanzler, Head of Research at the NAI apollo group. In the half-year period, this sector was only outstripped by “banking, financial services and insurances”. The financial sector is responsible for 20.2 % of total take-up, or 51,200 sqm.

Rents continue to rise
In terms of sub-markets, the banking district remains the most sought-after location in Frankfurt. In the first six months of 2018, take-up here amounted to 51,000 sqm and accounted for 20.1 % of the total volume. The ‘trade fair and Europe quarter’ (Messe/Europaviertel) sub-market was next with a 12.7 % share, followed by Westend (10.5 %) in third place. These three sub-markets form part of the CBD, which dominates the market with 70.1 % of take-up.

“The positive development in rental prices at the start of 2018 continued into the second quarter of the year. The space-weighted average rent increased by a further 10 cents compared to the previous quarter and now stands at €21.40/sqm. The prime rent was 50 cents higher by the end of the second quarter at €41.00/sqm,” said Dr Konrad Kanzler. The current prime rent is thus only €1.00/sqm short of the record high of the last 15 years.

Lowest vacancies since 2001
Not a single office project was completed in Frankfurt during the second quarter of 2018. Around 74,200 sqm was removed from the market, of which about 40 % was converted into residential or hotel space. Thus, office stock has fallen to 11.34 million sqm. In the second half of 2018, office completions are expected to amount to 107,200 sqm of space. For 2019, office projects in the pipeline current stand at 179,600 sqm, of which around 60 % is still available.

Owing to the good lettings performance, vacancies continued to decline significantly in the period from April to June 2018. “As of 30.06.2018, market-active vacancies — that is, office space that can be occupied within three months of signing of the lease contract — fell to 881,000 sqm on the Frankfurt market. This is the lowest level since 2001,” said Dr Konrad Kanzler. This amount of office space available at short notice equates to a vacancy rate of 7.8 %. This means that vacancies have fallen by 35,000 sqm and the vacancy rate by 0.2 percentage points within the last three months.

The positive market trend is expected to continue during the second half of 2018. “Accordingly, we abide by our forecast of above-average office take-up amounting to at least 550,000 sqm, a further reduction in vacancies, and a continuing rise in office rents,” said Radomir Vasilijevic.