During the first six months companies have been sluggish regarding leasing new office spaces. Actually, the bottom line shows a take-up of over 323,000 sq m, which means an increase of round 1.3% compared to the previous year’s result. However, it was significantly impacted by construction being implemented for the Allianz SE building in Unterfoehring in Munich’s surrounding area, which will provide 36,000 sq m of office space. The net leasing take-up (excl. owner-occupiers) totals 252,000 sq m of leased space representing a 71 % decline compared to last year. “The substantial cause for the decline is that companies realized their scheduled expansions during the last two years and the demand diminished accordingly.” explains Tobias Seiler, Research Analyst at Colliers International Munich. Large-scale leases were exceptional during the first half of the year. The lease of 14,000 sq m to Google at Kontorhaus, which is one of the last sites available in Arnulfpark, and 10,000 sq m to YIT at 88 North, which is an office building to be constructed in Moosach district, are some of the largest leases.

Inconsistent rent price development
Although the average rent for central locations has risen significantly, the total market rent remains at a stable level. Recording € 14.55 per sq m, it is now 1.6% below the previous year’s average rent price. Yet compared to the previous quarter, a slight increase by 1.5% was recorded. A significant increase in average rents was recorded once again for locations within Altstadt Ring, where the average rent is currently € 27.37 per sq m, exceeding the previous year’s results by 7.4%. The other sub-markets within Mittlerer Ring record an increase of 3.2% - 12.4%. Rent decreases were only recorded in the south-west center submarket compared to 12 months ago (-4.8%). Regarding the district locations outside of Mittlerer Ring, the average rent in nearly all sub-markets eased or remained stable. The heterogeneous development of the rent prices in the various sub-markets is, amongst others, due to the short supply of newly built spaces. For that reason this results in few leases for new buildings with above-average rent prices, which countervails the price-inflating effect triggered by the decrease in supply. “We increasingly feel the consequences from the historically low volume of new building completions during the previous year, which leads to leasing decisions switching from new buildings to stock buildings.” says Tobias Seiler. “The percentage of leases for space in new buildings and projects respectively declined by 11% compared to last year.” he adds. Despite the slow-down of the market activity, the decreasing supply results in a rise of prime rents. It continues to climb and by mid-year it amounts to € 31.50 for sq m, which is as high as it was at the beginning of 2008.

Vacancy decline continues – pipeline of new buildings limited
From an owner’s or landlord’s point of view the development of office space supply can still be looked upon favorably. The vacancy rate fell by 50 base points and is currently 5.9% compared to last year’s results. Although the latter was slightly above this year’s result (+10 b. p.) in a quarterly comparison, vacancy continues to decrease. In consideration of absolute figures, the Munich market area has over 1.33 million sq m of office space available for occupation within a short period of time. Approximately 68% thereof is located within the city limits. The number of new building completions during the first half of the year is limited. Emphasis is in particular on the completion of “Hofstatt” situated at the heart of Munich with more than 17,000 sq m of office space. This year only about 170,000 sq m of new office space will enter the market, 65% thereof has already been let or will be occupied by its owners. “The consequence is that this year only 60,000 sq m of newly constructed space will be available for rent.” Tobias Seiler notes. This makes it difficult for tenants to find large amounts of recently built space in certain locations, which is available in the short-term. All space in the surrounding area has completely been leased or is to be occupied by an owner-occupier as this year there are not any new speculative building projects.

Conclusion and Forecast 
“We already noticed a decline in new inquiries in the second half of 2012 and this development can been seen as expected in leasing results,” said Peter Bigelmaier, Head of Office Letting at Colliers International in Germany.  “The uncertainty left behind by companies on the letting market regarding economic development is however not in any way a sign of a break down,” he concluded. In the first six months of this year a slight increase in new inquiries was recorded, which will be reflected in the corresponding time offset regarding take-up figures. We remain to uphold our forecast and expect that a take-up of 600,000 m² can be achieved.

Fast Facts - Office Letting in Q2 2013
Space take-up: 323,000 m² (+1 % compared to Q2 2012)
Lease take-up: 252,000 m² (- 17 % compared to Q2 2012)
Prime rent:  € 31.50/m² (+ € 1.50 compared to Q2 2012)
Average rent: € 14.55/m² (- € 0.22 compared to Q2 2012)
Vacancy rate: 5.9 % (-50 basis points compared to Q2 2012)
Stock (incl. surrounding area): 22.60 million m²