April 11, 2012, Munich – “The results for take-up of space during the first three months of the year in Germany’s six most important office markets are definitely unusual. Overall, take-up of space during the first quarter of 2012 was at 614,600 square meters, about four percent above last year’s result – but only two cities were responsible for the increase,” says Andreas Trumpp, Head of Research at Colliers International, Germany. “While take-up of space in Berlin, Hamburg, and Munich was considerably below last year’s results, Stuttgart and Frankfurt achieved increases of over 80 percent,” he explains. Pure leasing take-up, not including office space occupied or occupied in advance by owner-occupants, stood at 579,000 m², an increase of some 12% year on year.

Frankfurt and Stuttgart exhibit spectacular rates of increase

Although Frankfurt was not quite able to take the highest rank among the top six, with take-up of space at approximately 128,900 m², the year-on-year increase was certainly noteworthy, at just under 89%. Four deals involving over 10,000 m² each were responsible for this development. “The year got off to a similarly spectacular start in Stuttgart, where about 83 percent more office space was taken up than last year. Like in Frankfurt, the increase in Stuttgart is due primarily to signings in the segment of spaces with over 5,000 square meters,” Trumpp explains. As in the first quarter of last year, Berlin (130,700 m²) and Munich (130,500 m²) were nearly tied in terms of take-up of space, although this year the two cities had switched rankings. Both office markets did, however, start this year with considerably more restrained activity, with figures for take-up of space down about 15% in both. The most pronounced decline in take-up of space came in Hamburg, where about 85,000 m² of office space was taken up, for a decrease of 17%. In Düsseldorf, capital of the state of North Rhine-Westphalia, 71,000 m² of space was newly leased or occupied by owner-occupants in the first three months of the year, for a moderate decline of 9%. Throughout Germany, consulting firms rented the largest amount of office space. They accounted for market share of about 16% in the first quarter, followed by companies in the information and telecommunications sectors, at around 13%.

Office vacancies decline again

“Office vacancies in the cities included in the study continue to decline across the board,” Trumpp points out. In comparison to last year, when over 8 million m² of office space was available in the short term to potential tenants, vacancies have declined by nearly one million square meters, with the figure at just under 7.1 million m² at the end of the first quarter of 2012 and the overall vacancy rate down from 10.0% to 8.8%. The positive trend from the past four quarters has thus continued into the start of 2012 as well. “A combination of low completion figures and high advance occupancy rates will help further reduce the volume of vacant space over the rest of the year,” Trumpp predicts. Except in Berlin, where the figure is still hovering at 7.9%, vacancy rates have declined in all cities. The top performer was Stuttgart, at 5.4%.

Prime rents up year on year in almost all markets

With take-up of space having increased in the higher-priced space segment as well as in lower segments, prime rents rose year on year in all markets except Frankfurt. While the prime rent there declined by € 3.50/m², or some 9%, from the first quarter of 2011, sliding to € 34.00/m² as a result of a low number of expensive new high-rise rentals, figures for most cities rose when compared with both the previous year and the previous quarter. The sharpest increase was noted in Stuttgart, where the prime rent climbed € 2.00/m² (11%) within 12 months, rising to € 20.00/m². In Munich, the prime rent reached the € 30.00/m² mark again for the first time since mid-2009, a development attributable to a number of high-priced signings in city center locations. Munich was followed by Hamburg, at € 23.50/m² (+ 2%), Düsseldorf, at € 24.00/m² (+ 4%), and Berlin, at € 22.00/m² (+ 5 %). “The fact that the average rents fell during the same period in four of the six cities is a phenomenon we have seen time and again in years with high take-up of space,” Trumpp says. “Many companies expand during better economic times and rent additional office space. But, to put it in simple terms, since the supply of space in the high-priced city center locations is limited or simply too expensive at the same time, they shift to more favorably priced locations, which has a dampening effect on the average rent. The prime rent, though, is not affected,” he explains. Here as well, the most expensive city was Frankfurt, at € 17.53/m², followed by Hamburg (€ 14.80/m²) and Munich (€ 14.77/m²).

Outlook – demand for space stable, continuous decline in vacancies

After a strong final spurt in the fourth quarter of 2011, most German office space markets started 2012 at a somewhat calmer pace, as expected. This is due to a number of factors, including lower volumes of requests. “On the whole, what we are seeing right now is a very stable development of take-up of space even as vacancy figures continue to decline,” Trumpp says in summary. The overall economic conditions in Germany lead analysts to expect these trends to continue for the time being.

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