„While larger individual leases provided for a good start in the year in the first quarter, it was the total of 36 mid-size leases each between 1,000 and 5,000 m² in the second quarter, which alone account for nearly 70,000 m² of the mid-year take-up,” says Tobias Seiler, Research Analyst at Colliers International in Munich. Central locations are favored by tenants and remain in high demand. Nearly half of leased space (47%) is located within Munich’s Mittlerer Ring. A further 32% is located within the city limits and the remaining 21 % is dispersed among Munich’s surrounding area.

Average and premium rents increase significantly

The increasing focus on central locations in combination with a short supply is causing average rent rates to rise on Munich’s market in those high-demand areas. This is reflected in the 8% increase in the average rent to € 15.79/m² for the entire market when compared to the previous year. “Since mid 2010 the market has markedly reduced vacancy and subsequently a continuous rise in average rent rates has been seen. This has currently reached levels that were last seen at the end of 2002,” says Seiler. Premium rent rates have climbed by nearly 10% from € 31.50 recorded 12 months ago to € 34.50/m². The reason for this is the large number of high-priced lease decisions for space in the historical downtown area. In the first half of the year more than 10,000 m² of office space was leased at rent prices exceeding € 30.00/m². Mid 2013 recorded even less than 7,000 m².

Minimal reductions in vacancy

The vacancy rate in the Bavarian capital is 5.7% and one of the lowest in all of Europe’s top markets. In comparison to the previous year vacancy has dropped by another 20 basis points so that currently 1.304 million m² of space is available in the short term. A remaining poorly filled pipeline of new buildings in combination with office space demand is slowly but surely gaining momentum and should largely stabilize vacancy rates in the coming quarters. Within the individual sub-markets within the city limits, vacancy varies between 2.2% in the north-east downtown area (Schwabing / Bogenhausen districts) and 9.2% in the south-west city locations in the direction of Sendling. In the surrounding area the vacancy level remains at 8.1%.

Forecast: Economic conditions allow for expectations of further market gains

Although large scale tenants occupying more than 5,000 m² did not lease any space in the second quarter, the strengthening mid-size segments indicate a continuation of a light recovery on the market. “Even though the restraint of many tenants can still be felt, the good economic conditions will, however, lay demand on a broader base in the second half of the year so that a lease performance of 550,000 m² can be achieved,” stated Peter Bigelmaier, Head of Office Letting at Colliers International. “During all of 2014, only 212,000 m² of newly constructed space will enter the market, 70% thereof is already pre-let. With a further gain in the market, it is therefore to be expected that supply of new space will shorten in central locations,” continued Bigelmaier. The trend for rises in average and premium rents will continue and vacancy will settle at stable levels.

Fast Facts - Office Letting Q2 2014

Space Take-up: 303,400 m² (-6 % compared to Q2 2013)
Lease Take-up: 292,700 m² (+16 % compared to Q2 2013)
Premium rents: € 34.50/m² (+9,5 % compared to Q2 2013)
Average rents: € 15.79/m² (+8,5 % compared to Q2 2013)
Vacancy rate: 5.7% (-20 basis points compared to Q2 2013)
Stock (+Environs): 22.74 million m²