Frankfurt office market 2012: Highest rental volumes for five years

7 Jan, 2013, Frankfurt

• Strong fourth quarter sees space turnover on the Frankfurt office market climb over 500,000 sqm once more
• Rental volumes 11% over ten-year average
• Banks and financial services strongest rental group in 2012 despite all the uncertainties on the financial markets

The Frankfurt office space market (including Eschborn and Offenbach-Kaiserlei) picked up speed once more at the end of 2012. 168,000 sqm of office space was newly leased in the final three months of the year, meaning a total result for the year of 510,000 sqm can be reported. This is the highest rental volume in the past five years (2007 was 550.000 m²). If nothing else, the strong fourth quarter – the third largest quarter in the past five years in terms of turnover – contributed in exceeding the result for the previous year by 20% and achieving an annual figure that is 11% above the average for the past ten years.

According to international commercial real estate consultancy Cushman & Wakefield (C&W) the Frankfurt market presented itself as broadly diversified over the past year and, when compared with 2011 in particular, as having significantly greater activity in the large floor space segment. "The number of rental agreements with floor space sizes north of the 5,000 sqm mark has increased from eleven to eighteen over the past twelve months. In so doing, the rental volume in this large floor space segment has increased by an impressive 70,000 sqm from 130,000 sqm to 200,000 sqm. Accordingly, the market share of this size segment accounted for 40% in 2012," explains Dennis Stern, head of the Frankfurt office rental department at C&W. "We also recorded considerably more activity with regard to deals for rental spaces between 1,000 and 3,000 sqm compared with the previous year. 82 contracts were penned over the year just gone, covering a total of 130,000 sqm. In total, this size segment contributed 25% to the annual result. When combined with rentals for less than 1,000 sqm, which have a market share of 30%, this constitutes a great stability factor for the city of Frankfurt."

Despite all the uncertainties on the financial markets, Frankfurt's banks and financial services proved to be highly active in terms of renting. They leased a total of 79,000 sqm last year and thus achieved a market share of just under 16%. The real estate consultants see this as a positive sign for the financial centre of Frankfurt am Main. Another 14.5% (or 74,000 sqm) was contributed to the year's annual turnover by the headquarters of industrial enterprises; supported in particular by the 25,000 sqm deal involving Lurgi AG in the Merton district of Frankfurt.

The vacancy rate also fell a further time during the last quarter of the year. At the end of December this was recorded at 13.2% (December 2011: 13.8 %). There is currently a total of around 1.58 million sqm available for leasing in the short-term. Due to the high pre-occupancy rate of around 80% of projects that are set to arrive on the Frankfurt market over the coming twelve months (with a total volume of 376,000 sqm), the vacancy rate may see further successive falls in 2013.

The total stock of office space stood at around 12 million sqm at the end of 2012. Therefore, the stock has fallen only slightly compared to December 2011, due to extensive space conversions, redevelopments and, last but not least, lower building completion volumes. This downward trend of total stock of space will cease in 2013. Whilst 2012 saw a below average 89,700 sqm of new office space completed, a construction completion volume of 376,000 sqm is expected in 2013. Some of the largest projects here include the new construction of the European Central Bank (ECB), the Taunusturm (60,000 sqm) and the redevelopment of the former Poseidon Haus (now Leo) with 40,000 sqm.
The peak rate in the city of Frankfurt proved highly stable last year. Just as at the end of 2011, it is currently registered at€34.00 per sqm per month and is generated in the CBD.

"Despite the economic malaise that we are currently experiencing in Germany, we are going into the new year cautiously optimistic," says Inga Schwarz, head of C&W's research department. "In the final quarter of 2012 the players on the Frankfurt office space market proved not to be too concerned by the economic slump in Germany, the poorly performing world economy and all the news concerning the European sovereign debt crises. Given this context, and in view of the fact that the German economy appeared in good shape by the end of 2012, we are predicting that the Frankfurt office space market will achieve a result in 2013 at the same level as the ten-year average."

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