Frankfurt's office market makes a strong start to the year
4 Apr, 2012, Frankfurt
• No sign of springtime sluggishness
With a lease volume of 130,000 square metres (including owner-occupier transactions), the Frankfurt office space market has made a particularly strong start to the year, performing at an above-average rate. The results for the first quarter have risen by 41% on last year, and a look back at previous years underlines just how strong a start it has been: the volume of space leased is around 67% above the 10-year average for the first quarter (the average being 78,050 square metres).
According to Cushman & Wakefield (C&W), the international commercial real estate organisation, this result has only been equalled on one occasion in the last decade: in the first quarter of 2009, the volume of space leased was recorded at 135,000 square metres. Whilst three years ago it was a large 72,000-square-metre transaction from Deutsche Bahn that had the major positive effect on the strong Q1 figures, this year a range of contracts in various magnitudes have played their part in achieving these excellent results. "At the moment, Frankurt's office space market looks really dynamic, including the large-scale segment," says Dennis Stern, Director of C&W's Frankfurt Office Space Leasing department. "Unlike in previous years, in the first few weeks of this year we have been able to record an above-average number of contracts for spaces over 10,000 square metres: in the last five first quarters it was only possible to conclude one transaction, if that, above that level, but in 2012 four successful transactions were completed, covering a total area of 54,800 square metres. These include the lease agreement signed by Kreditanstalt für Wiederaufbau (KfW) for over 13,000 square metres in the ibc Tower and Union Asset Management Holding AG's lease of more than 12,700 square metres in the MainTor Porta project." Whilst the number of contracts concluded in the 3,000 to 10,000-square-metre range (four covering 10,800 square metres in total, which equates to a market share of 3%) is about the average that has been achieved for many years now, the level of leasing activity seen in the 1,000 to 3,000-square-metre segment is very remarkable indeed for a first quarter. By the end of March, 19 contracts had been registered for a total of 30,500 square metres (7% market share).
Vacancy rates have fallen moderately for the fourth quarter in a row, standing at 13.7% at the end of March. There is currently a total of around 1.65 million square metres available for short-term leasing. Bearing in mind that the expected volume of new building completions for the whole of 2012 is only around 90,000 square metres (81% of which were pre-leased at the end of March), the volume of vacant space could well drop even further in the coming months.
As of the spring of 2012, there are around 12.01 million square metres of office space in Frankfurt. 30,500 square metres of office space have been completed so far this year, with a further 59,500 square metres expected by the time the year ends. It is not until next year that the number of building completions will rise again, thanks to large-volume developments such as the Taunusturm (60,000 square metres of office space) being finished. Current forecasts for the year 2013 are for 200,000 square metres of completed building volume. At the moment, a total of 373,000 square metres of office space are under construction in Frankfurt.
The top lease recorded in March was again €34.00 per square metre/month, which was achieved in the CBD. Although a lack of absolutely premium areas at the end of 2011 led to a drop of €1.00 per square metre/month in the top lease, recently initiated developments in top-segment projects could reverse this trend during the course of the year once more. It seems realistic to expect a renewed increase in the top lease over the coming months.
"It took the market in Frankfurt a little time to get going in the first few weeks of the year, but now in spring things are looking decidedly brighter," says Inga Schwarz, Director of Cushman & Wakefield's Research department. "Tenants have confidence in Frankfurt as a location, as reflected by their willingness to conclude new lease agreements. At the moment we are seeing movement across all sectors and all volumes of space, particularly in the banking and financial services sector that is so important for Frankfurt. We are waiting with bated breath to see what the rest of the year will bring. After all, the economic outlook for the eurozone in particular remains troubled and the uncertainty on the global financial markets has not yet been overcome – both of which are important basic parameters for Frankfurt's office market too."
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