Frankfurt office market: Solid Result Despite Space Reduction

4 Jan, 2012, Frankfurt

• Letting volume of the Frankfurt office space market at 424,000 m²
• Turnover falls by 11% on 2010
• Despite instability on the financial markets, banks and financial services remained one of the strongest tenant groups in 2011

Over the past twelve months, the rental volume of Frankfurt's office space (including Eschborn and Kaiserlei) under lease stood at around 424,000 m². This means rental turnover is around 11% less than the 475,000 m² for the previous year and a good 12% below the average for the past ten years (the average being 485,000 m²). According to Cushman & Wakefield (C&W) , this amounts to an altogether solid performance for the banking capital in spite of this reduction - especially when one considers the continuing, great instability on the worldwide financial markets, and also considering the fact that in the year 2010 the construction of the new headquarters of the European Central Bank (ECB), with its 104,000 m², skewed the total annual turnover.

According to the international property consultants, both large and small-scale lease transactions have contributed to this year's result in equal measure. "If the Frankfurt market was characterised by individual, exceptional transactions in previous years - almost a tradition already - then this dominance has disappeared to a large degree," reckons Dennis Stern, Director of C&W's Frankfurt Office Space Leasing department. "We continued to see movement in the large-scale segment in 2011, and the number of leases for office space greater than 10,000 m² even increased from three to five on the previous year. But its market share now currently stands at just 21%, where it was 28% previously. What has increased are the area categories of between 3,000 and 10,000 m² - which affects both the volume of space leased and the market share. The volume of rented space has increased from a good 81,000 m² to nearly 97,000 m², with the market share up from 17% to 23%. Over the last few years, it is lease agreements under 1,000 m² that have increased most strongly. Their share of the total market now stands at 35%. This is a strong foundation that we can count on in 2012."

The vacancy rate has fallen for the third quarter in a row, and stood at 13.8% at the end of December. There is currently a total of around 1.66 million square metres available for short-term leasing. Due to the high pre-occupancy rate (74%) of projects that are set to arrive on the Frankfurt market over the coming twelve months (with a total volume of around 85,000 m²), the vacancy rate may see further successive falls in 2012, according to the assessment of C&W.

The total stock of office space stood at around 12.02 million m² at the end of the year. If you include the entire renovation of Silver Towers, around 241,000 m² of office space was made available over the past year. A reduction in the volume of development completion to 85,000 m² is forecast for 2012. It is only from 2013 that the number of new office spaces may climb again with large-volume completions. Since the commencement of 2011, construction activity has continued to increase. Where, in January 2011, 302,000 m² were under construction, this was 430,000 m² at the end of December.

By the end of the year, the highest monthly rent per square metre stood at 34 EUR, which was charged in the CBD. This means the top rate of monthly rent per square metre has fallen on the previous quarter by 1 EUR. This reduction is due to the current dearth of absolute premium space. Those interested in the highest quality spaces would not find any offices in the current stock that would justify such lease prices.

"Given the comparative dearth of positive economic forecasts for 2012, and that we have instead had the uncertainties of the global financial markets dominate the headlines over the past weeks, I think we can take some satisfaction from these annual results for the Frankfurt market," buoyed Inga Schwarz, Head of Research at C&W. "The market players haven't faded over the past quarter, and that also applies to the banks and financial services that are so important for Frankfurt. Over the whole year, they leased around 60,000 m² of new space - around 20,000 m² of this in the final quarter alone. So the market is still very much fluid, and also in the sectors that are most important to it. However, current news reports force us to acknowledge that 2012 is hardly going to be a year of bumper turnovers."

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