Only a few owner-occupiers took up new office space, resulting in a slight decrease in net leasing performance at 601,900 sqm. Compared to the previous year, in which we saw very weak take-up results, 2014 experienced an increase of four percent in take-up and a whopping 20 percent in lease transaction volume.
With no large-scale leases being signed in Q2 and Q3, the end of the year brought six lease agreements for more than 5,000 sqm of office space each. These six included Panasonic with around 12,000 sqm in Ottobrunn in the southern city outskirts and the City of Munich, which leased around 10,000 sqm on Landsberger Straße between Hackerbrücke and Donnersbergerbrücke bridges for its Department of Education and Sports. The two largest transactions of the year were conducted in Q1 with Brainlab signing a lease agreement for a project at the trade fair grounds in Riem and BayWa signing an agreement for space on Werinherstraße. Both leases involved around 20,000 sqm each. The largest amount of space, however, was taken up in the 2,001 - 5,000 sqm segment. While the previous year saw an unusually low number of agreements signed in this segment, 2014 posted a solid increase of 88 percent at 156,000 sqm. The small space segment of less than 500 sqm recorded a drop of around ten percent to 120,000 sqm, causing little change in the total number of leases signed compared to 2013.
Average rent took a breather following a longer upward trend. Average rent posted €14.91 per sqm at the end of the year, down from 2013 by slightly more than two percent. This development can primarily be attributed to the fact that leasing performance was up once again in the surrounding area at relatively affordable prices. Rents for space located inside the city ran at €16.46 per sqm on average, a year-on-year increase of one percent. Rents in the surrounding area averaged at €9.97 per sqm, up 3.5 percent from the end of 2013. Prime rent experienced a year-on-year increase of 5.5 percent to €34.50 per sqm. “Although the trend toward higher rents has recently slowed, many tenants are still willing to pay higher rents in view of the scarcity of high-quality space in top locations,” says Peter Bigelmaier, Managing Director at Colliers International Munich and Head of Office Letting Germany.
We saw a considerable reduction in office space vacancy over the course of the year, particularly in the final quarter. 1.156 million sqm, or 5.1 percent, were available for immediate lease at the end of December 2014. That is one whole percentage point down from the previous year. Tenants were particularly active in taking up office space within the city. Vacancy in the city fell 212,000 sqm to 761,500 sqm, or 4.4 percent. Vacancy in the surrounding area was down around 24,000 sqm to 428,700 sqm, or 7.5 percent.
One reason for this considerable drop in vacancy was the low new-build completion rate. Around 194,000 sqm of new office space was added to the existing pool, a level that is below average. 83 percent of this space had already been leased or taken up by owner-occupiers by the end of the year. Based on the current situation, slightly more space will be completed in 2015. Out of the 241,000 sqm currently in the pipeline, 56 percent had been taken up by the end of December.
“2014 performed even somewhat better on the office leasing market than we originally expected thanks to some last-minute large-scale leases. Some larger deals are already pending for the first few months of the new year as well. However, in view of the fact that the general economic trend remains fragile and too few companies are currently pursuing their plans to expand, we do not expect to see a large-scale increase in activity on the leasing market,” Peter Bigelmaier concludes. “We therefore predict lease take-up (excluding owner-occupiers) of 600,000 sqm with activity levels in 2015 similar to those we saw in 2014.