NAI apollo: The office markets in the areas surrounding Frankfurt are in good shape

Over the course of the last year, the office space take-up generated by tenants and owner-occupiers in the four locations mentioned above totalled 76,700 m². Eschborn recorded the highest take-up volume at 33,300 m², while Bad Homburg came in fourth with 8,400 m². The take-ups for virtually all markets are below the levels for 2017. Only Neu-Isenburg recorded a plus of 64.4% with a total of 17,100 m² in 2018. “The declines in the other markets are largely due to the extraordinarily high results of the previous year. In long-term observations, all cities achieved high take-ups in 2018, with the exception of Bad Homburg. The market in Bad Homburg is currently somewhat difficult, as the city is lacking modern office space that is available on short notice,” says Christian Dörner, Head of Office & Retail Letting at NAI apollo.

Prime rents increasing in all markets

Prime rents are currently following an upwards trend. “The strongest increase of 3.2% and the highest value was achieved in Eschborn, with a current prime rent of 16.00 euros/sqm. Neu-Isenburg recorded an increase of 2.3% to 13.40 euros/sqm, followed by Bad Homburg with 2.0% to 15.60 euros/sqm and Offenbach with 1.4% to 14.80 euros/sqm,” Christian Dörner explains.

Decline in vacancies also in the surrounding areas

Although the take-up business declined recently, an overall reduction in vacancies was recorded for all markets. In 2017, the vacancy level was still at 333,100 sqm, or 11.4%, which dropped to 315.400 sqm, or 10.8%. “Particularly low vacancy rates were recorded in Bad Homburg (5.8%) and Offenbach (6.9%). These figures are in the similar to that of Frankfurt (6.5%) at the end of 2018. By comparison, the strongest decline in vacancies was recorded in Neu-Isenburg, where the rate dropped by 2.2 percentage points to 14.5%,” says Dr Konrad Kanzler, Head of Research at NAI apollo group.

Large yield gap compared to Frankfurt

Although office properties are sold less frequently in Bad Homburg, Eschborn, Neu-Isenburg and Offenbach, there is nonetheless a healthy demand for assets in these locations. The prime office yields at the turn of the year were in the range of 4.6% in Eschborn and 5.1% in Offenbach. Overall, all four cities are characterised by a decline in yields in the range of 35 to 55 basis points. “The yield spread, compared to Frankfurt, of 155 to 205 basis points, at partially moderate vacancy levels, the solid demand for space and increasing office rents can certainly make a case for the locations as a real investment alternative when leaving the ticket size aside,” Andreas Wende explains.

Surrounding cities more positive than often assumed

“Overall, the office markets in the Frankfurt surroundings are in better shape than is generally expected,” says Dr Konrad Kanzler in summarising the results. This is reflected by the only moderate amount of available space in Bad Homburg and Offenbach, or the noticeable declines in vacancies in Eschborn and Neu-Isenburg over the past years, among other things. And the continued positive development of rents is also highly likely in the future. These locations have overall higher yield potentials at moderate risk levels when compared to the major office locations.