Large-scale leases, which had been nearly missing, made a final strong push on the Munich market in December. Even two large lease contracts were concluded: Swiss Re rented 9,200 sq. for the relocation of its German office from the outskirts to the Bavarian Capital, and Lotto Bayern rented 11,600 sq. m near Theresienwiese. Already in November, Microsoft committed itself to Munich and leased round 26,000 sq. m office space in a project development in Parkstadt Schwabing. This has been one of the largest single leases in Munich for a decade. Thus, a total office space take-up of 594,700 sq. m was realized in 2013. Subtracting owner-occupied spaces the absolute lease performance results in 500,100 sq. m. “In the annual comparison the take-up considerably decreased and is 15% behind the previous year’s result, as the though strong last quarter could not compensate for the weak preceding quarters.” Tobias Seiler, Research Analyst at Colliers International Munich sums up. While the take-up in the segment of small spaces up to 500 sq. m only diminished by 3%, the demand for mid-sized spaces dropped significantly in comparison with the previous year. The space segments 1,001 – 2,000 sq. m and 2,001 – 5,000 sq. m each recorded a setback by approx. 30% compared to 2012.
Average and prime rent prices increase
In spite of the decreasing demand for office space, a rise of the average rent price was traced. During the past 12 months it has increased by 4.7% to € 15.28 /sq. m referring to the total market area and by 3.5% to € 16.30/sq. m regarding the city area. This is due to numerous leases at good locations raising the average price of the total market. “Rents for office space at locations within Altstadtring recorded a clear increase by over 9% to € 28.77/sq. m. Locations at and around Maximilianstrasse in particular showed strong lease activities.” says Tobias Seiler.
On the remaining central submarkets and in the further city area the rents largely ranged on a stable level. There has been a significant increase by round 13% in the southeastern central submarket as spaces in new buildings came into the market on a relatively big scale and were let accordingly. The prime rent continued climbing to € 32.70 /sq. m by now, which is a rise by 6.8% compared to December 2013. Hence the prime rent price is at its highest level for the past decade. It can be assumed that the limit has not been reached yet and, due to the still short supply of high-quality office space, further rises in prices will take place during the coming quarters. In the outskirts the rents were largely stable. Here the nominal rent averages € 9.64 /sq. m, however, there are large regional discrepancies ranging from € 6.50/sq. m to € 12.50 / sq. m at established office locations.
Vacancy persists stable
In the first quarter 2013 the vacancy reached 5.8%, its lowest level for a decade. At the end of the year, after a meantime increase in the course of the year, the vacancy is at 6.1%; however, regarding the 12-months period the rate did not change. A total office space of 1.4 million sq. m is available at the short term on Munich’s market, 985.000 sq. m (5.6%) in the city area.
Although the annual comparison shows a significant increase in the volume of new building completions from 120,000 sq. m in 2012 to 224,000 sq. m in 2013, 82% of this space is already occupied. A similarly large completion volume as in 2013 is expected for the coming year, which is still below the long term average. By now approximately two thirds of these new spaces are already pre-let or owner-occupied as well.
Conclusion and forecast
With regards to the relatively few new inquiries, especially in the large-sized space segment, and the economic outlook at the end of 2012 the take-up decrease was no surprise, but its extent was significantly larger than expected at the beginning of the year. “For several quarters we have been noticing that when it comes to lease decisions companies have become more reluctant than they were in preceding years and tend to extend existing lease contracts and rather increase the density of workspace.” states Peter Bigelmaier, Managing Director at Colliers International Munich and Head of Office Letting Germany. “Though some very concrete inquiries have carried on into the new year and lease contracts will be signed at the beginning of 2014, a revival of the market can first be expected during the second half of 2014 at the earliest.” he forecasts. In the case that the modestly positive outlook for the economic development in 2014 comes true, we consider 550,000 sq. m (excluding owner occupiers) a realistic lease take-up.
Fast Facts Office Letting Q4 2013
Take-up: 594,700 sq. m (-15% compared to Q4 2012)
Letting turnover: 500,100 sq. m (-22 % compared to Q4 2012)
Prime rent: € 32.70/sq. m (+2.10 € compared to Q4 2012)
Average rent: € 15.28/sq. m (+0.69 € compared to Q4 2012)
Vacancy rate: 6.1 % (unchanged compared to Q4 2012)
Existing space (incl. outskirts): 22.70 million sq. m