Ominous calm on Frankfurt office market

2 Oct, 2009, Frankfurt

• Volume of leased space falls to just 71,000 m2 in third quarter
• Even the prospective coalition government is likely to be too weak to trigger a real year-end rally

The Frankfurt office space market slowed further still during the third quarter. Just 71,000 m² was leased over the past three months, making it the weakest third quarter of the last ten years. The total volume of leased space to date in 2009 is approximately 281,000 m², down an alarming 27% on the same period last year.

According to international real estate consultancy Cushman & Wakefield (C&W), the dismal quarterly figures are down to the lack of leases signed in the mid-size segment. “As in the previous quarter, the major shortfall was in this area,” says Jörg Ettmann, head of office space leasing at C&W. “Not single transaction was concluded in the 2,000 to 4,999 m² segment, which is extremely important for the market. One of the market's mainstays was missing, but the fact that two leases for more than 10,000 m² were signed bodes well, showing that there is still movement in the market for larger spaces.” Leases for more than 10,000 m² accounted for a total of 25,190 m² (around 35%) of the quarterly result, while leases in the small space segment continued to have a stabilising effect on the market. Approximately 51% of the total volume of leased space was in the less than 2,000 m² segment.

There was also a healthy sign given the current economic and financial crisis: banks and financial service providers were by far the largest lessee group. These companies rented just under 31,000 m² in the last three months - accounting for a hefty 43% of turnover.

The vacancy situation on the Frankfurt office market has changed considerably over the past few months. It rose sharply during the third quarter and now stands at 1.73 million m². With the total space available amounting to 11.5 million m², this corresponds to a vacancy rate of 14.6% (second quarter 2009: 13.8 %).

In line with the shift in supply and demand and companies' heightened cost awareness across the board, as expected, prime rents in Frankfurt fell once again. The prime rent is now 35.00 Euro/m²/month (Q2: 36.00 euro/m²/month). “Rents are under pressure across the market and this is likely to persist for the time being,” according to Jörg Ettmann. “Tenants are conscious of the more difficult economic climate and trying to cut costs as far as possible. Since they are well aware of their stronger bargaining position, there is a real push for incentives - which are being granted.”

“The Frankfurt market at the end of the third quarter is ominously calm,” says Inga Schwarz, head of research at C&W Deutschland. “All market players are extremely cautious and wary. If there had been encouraging signs from the real economy over the last few weeks, we would be starting the fourth quarter on an optimistic note. Unfortunately, that was not the case. Close attention should be paid to the situation on the German job market. We are sceptical about whether the prospective coalition government will be able to boost the market again in the last three months. At present, it looks like we are unlikely to get past the 400,000 m² mark.”

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