August 27, 2012, Munich – Colliers International, Germany, has drawn valuable insight for project developers and holders of portfolios of office properties from a recent analysis of about 25,000 new lease signings from 2000 to 2011 in Germany’s six most important markets for office space: Berlin, Düsseldorf, Frankfurt, Hamburg, Munich, and Stuttgart. The results of the study, published today, provide guidance for decisions relating to both planning of new buildings and renovations, including full renovations and remodeling, of office properties. The key question the study asks is whether, and if so to what extent, increased divisibility of space is a beneficial factor in terms of successful leasing to tenants – or can even guarantee a new signing’s success.

Initial situation

In 2011, nearly 3.1 million m² of office space was taken up in the German office real estate market, putting that year second only to 2007 in terms of the strongest take-up figures within the past ten years. The positive result for take-up of space stood against about 7.1 million m² of office space on the supply side at the end of 2011. Some of the available space, however, sees limited demand even in years when take-up figures are robust. “That was the initial situation the study aimed to analyze,” explains Andreas Trumpp, Head of Research at Colliers International, Germany. “The study looked only at newly signed leases, leaving out owner-occupied properties and lease renewals. Then, during the analysis, we broke the leases down according to whether they were for existing properties, new construction, projects, or buildings under construction,” Trumpp continues.

Majority of leases signed for small spaces

The overall results showed that only about 16% of all lease agreements reached a size of 1,000 m² or more, and just 2% fell within the segment of large properties over 5,000 m². Fifty percent of the leases included in the analysis were signed in the small segment, comprising properties with 344 m² or less of space. “The analysis also shows that if we differentiate further between existing properties and new construction, the trend toward leasing smaller spaces is considerable stronger in existing properties. That is due to the fact that only a relatively small portion of projects and new buildings is set aside for leasing in smaller units. These types of properties focus on large anchor tenants, since they are the most important factor in terms of the financing specifications and in general for the feasibility of the property itself,” says Felix Kugler, who developed the study for his bachelor’s degree thesis at Nürtingen-Geislingen University, Germany (HfWU).

Trend toward signings for small units of space – increased demand for flexible spaces

The trend toward leases for small units of space also becomes clear when viewed over time. During the cycle from 2000 to 2005, some 50% of leases signed were for less than 350 m² and 75% were for less than 741 m²; in the six years after that, the same percentages applied to units with less than 340 m² and 649 m², respectively (see chart). “The trend toward leases for small units, and the reinforcement we have seen in this trend, mean that there is high demand on the market for flexibility in spaces, and that this factor can indeed have a positive impact on the success of leasing activities. We also conducted a survey of real estate market players that are active in more than one region, and it showed that the actual figures vary widely from expected figures with regard to the scope of leasing involving smaller units. Combined with our own expertise, we will be able to use these insights from the study on a highly targeted basis to provide our customers with optimized advice,” Trumpp concludes.