18 July 2011, Munich – The German office leasing market showed its most positive side in the first half of 2011 in terms of take-up of space. “Just under 1.42 million m² of space was taken up in the six most important centers of office activity, an increase of almost 19% from the previous year.

At the same time, this is the second best half-year result since 2005,” emphasizes Andreas Trumpp, Head of Research at Colliers International in Germany. The quarterly result alone is also noteworthy. Overall, the cities analyzed by Colliers – Berlin, Düsseldorf, Frankfurt, Hamburg, Munich, and Stuttgart – yielded a figure of about 814,000 m². “The last time we saw higher quarterly take-up was immediately before the economic and financial crisis, in the fourth quarter of 2007,” Trumpp points out.

The unchallenged leader in take-up of space through the middle of the year was the Munich office market, where approximately 387,000 m² was taken up, over 50% more than during the first six months of last year. The office market in Berlin, which topped its 2010 results by nearly 26%, came in second, with 289,800 m² of newly leased office space, followed by Frankfurt, where the figure was 243,000 m², almost exactly the same as the previous year, and then by Hamburg, with approximately 220,000 m² of space taken up, for an increase of slightly less than 19%.

The biggest percentage jump came in Stuttgart, the smallest of the six major markets for office space, where this year’s take-up figure of about 128,000 m² is nearly double the figure for the same period of last year. The increase is attributable to several signings for large spaces of over 5,000 m², which made this quarter’s results by far the best of any quarter since 2005. Düsseldorf was the only market to see a decline in take-up of space year on year (-30%), a development that reflects the large Vodafone lease signed last year. The total figure of 148,000 m² recorded for take-up of space in Düsseldorf during this half-year period is, however, almost exactly in line with the five-year average for this market.

Vacancies Declining on the Whole

After three quarters of stagnation in terms of vacancies across the cities analyzed, where absolute vacancies hovered just over 8 million m² despite increasing leasing activity, the positive market trends that had been noted previously began to show on the supply side as well. “The rising figures for take-up of space, combined with a decline in new project completions, added up to a vacancy figure that was some 261,000 m² lower than in the previous quarter,” Trumpp says. With 7.75 million m² of office space vacant at the end of June 2011, there was also slightly less space vacant in absolute terms than one year ago. As a result, the vacancy rate for all markets fell by ten base points year on year, to 9.7%.

All of the office markets posted declining vacancies compared with the preceding quarter, except Düsseldorf, where nearly 900,000 m² of office space stood vacant at the end of June, an increase of about 23,000 m² over the figure at the end of March. When viewed year on year, by contrast, vacancies rose slightly in three markets (Düsseldorf, Hamburg, and Munich) and fell in the other three (Berlin, Frankfurt, and Stuttgart). Frankfurt continues to have the largest amount of vacant office space, but the figure at the end of the first half of this year dipped back below 2 million m² of office space for the first time in four quarters, making for a vacancy rate of 17.0%. This is followed by Munich (1.79 million m² of vacant space, 8.0% vacancy rate), Berlin (1.45 million m², 8.1%), Hamburg (1.17 million m², 9.0%), Düsseldorf, and Stuttgart (465,500 m², 6.3%).

Prime Rents on an Upward Trend

The prosperous overall economic situation increased the willingness of some parties on the demand side to increase their leasing activities in central locations, and thus pay higher rental prices, which led to an upward trend in prime rents. The leading market in this regard is still Frankfurt, where the prime rent at the end of the second quarter was € 37.50/m², an increase of € 2.50/m² from one year ago. By comparison to the previous quarter, however, no change was noted. At € 29.00/m², Munich came in second, with an increase of € 1.00/m² year on year and 50 cents over the previous quarter. The largest increases by comparison to both the previous year and the last quarter were noted in Berlin, with prime rent of € 22.00/m², and Stuttgart, where the figure rose to € 18.50/m².

Düsseldorf was the only market to see a decrease from last year, with prime rent declining from € 25.00 to € 23.00/m², but this figure is in line with the value for the three preceding quarters. It is not, or not yet, possible to discern a uniform upward trend in terms of average rents overall, however. In this area as well, Frankfurt has the top figure among the cities analyzed, at € 20.00/m², followed by Düsseldorf (€ 14.10/m²), Munich (overall market, € 13.81/m²), Hamburg (€ 13.70/m²), Berlin (€ 12.30/m²), and Stuttgart (€ 11.03/m²).

The robust overall economy, rising numbers of new orders, and high capacity utilization among companies are increasingly being felt as enterprises pursue expansion and relocation plans that had been postponed during the past two years. The office leasing markets also benefit from these developments, although the delay between adoption and implementation of these plans means that the full impact of these trends is only now beginning to show. “For the next few months, we believe that continuing above-average demand will run up against widespread declines in supply in the new construction segment,” Trumpp says in summary. “On the whole, we expect this to continue to push vacancies downward as growth in rental prices slowly assumes a steady curve.”