17 October 2011, Munich – Momentum remains high on the German office leasing market, which did not take even a short breather from July to September. “Regardless of the mood on the overall economy, which has darkened somewhat, office users are continuing to lease large amounts of new office space,” says Andreas Trumpp, Head of Research at Colliers International in Germany, commenting on developments on the market for office space. “By the end of the third quarter, we registered take-up of space of just under 2.20 million m² in the most important centers of the office market. That works out to an increase of nearly 15% from last year,” he adds. The year-on-year comparisons are especially positive for Stuttgart, Munich and Berlin. The market in Stuttgart, the state capital of Baden-Württemberg, is booming to a particular degree. Driven by new leases for large spaces, like that signed by the State of Baden-Württemberg for 14,000 m² in the Postquartier development, about 206,000 m² of office space has been taken up so far, an increase of almost 77% from 2010 figures. In light of this trend, Stuttgart is on track to break its previous record, set in 1999, of approximately 220,000 m² of space taken up, and will probably do so early in the fourth quarter. By comparison to last year’s figures, the Munich office market gained a total of about 39%, rising to 595,700 m², making it the top performer by take-up volume. Berlin came in second at the end of the third quarter, with approximately 455,000 m² of space taken up, an increase of 33% year on year. The Hamburg office market also showed gains, at take-up of 380,000 m², although the increase, at just under 6%, was not as dramatic as in the other three markets. The year-on-year figures for Frankfurt and Düsseldorf showed the negative effects of two major new leases signed in 2010, with the European Central Bank lease in Frankfurt and the Vodafone lease in Düsseldorf resulting in declines of 12% and 21%, respectively, in take-up of space in those markets.

Vacancies declining in all cities
“Continued strong take-up volumes have combined with ongoing low completion figures to continue the trend toward declining vacancies,” Trumpp finds. At the end of September, a total of 7.48 million m² of office space was vacant, equivalent to a decline of about 589,000 m² year on year and about 278,400 m² from the preceding quarter. The vacancy rate for all cities combined fell from 10.1% at the end of Q3 2010 to a current figure of 9.3%. “One pleasant development is that the positive leasing figures have now also begun to show on the supply side on all of these markets,” Trumpp says. “In all of the cities we analyzed, vacancy figures are declining, although this development is more pronounced in some markets than others.” The biggest jump came in Stuttgart, where the vacancy rate fell from 7.0% last year to 5.6% for the current period, corresponding to an absolute figure of about 418,000 m² of office space available for leasing in the short term. In Frankfurt, too, vacancies continued to slide. The vacancy rate fell to 16.5%, reflecting that city’s 1.92 million m² of vacant space. Between these two markets are Munich, at 1.73 million m² of vacant office space (vacancy rate: 7.7%), Berlin, at 1.43 million m² (8.0%), Hamburg, at 1.10 million m² (8.4%), and Düsseldorf, at 869,200 m² (11.2%).

Development of rental prices varies
After an upward trend in both prime and average rents last quarter, there is no discernible common trend in effect across these markets at the end of the third quarter. In Düsseldorf and Frankfurt, where take-up of space was below average compared with last year, prime rents fell by comparison to both 2010 and the previous quarter. In the other cities, prime rents rose year on year, but stagnated by comparison to the previous quarter. Despite a slight decline, Frankfurt remains the most expensive area for office tenants, with prime rent at € 36.00/m². Munich follows, at € 29.30/m² and with potential for further increases, ahead of Hamburg (€ 23.50/m²), Düsseldorf (€ 22.50/m²), Berlin (€ 22.00/m²), and Stuttgart (€ 18.50/m²). In terms of average rent, two markets (Berlin, Hamburg) showed an upward trend year on year, compared with four (Düsseldorf, Frankfurt, Munich, Stuttgart) where the trend was toward a slight decline. Here as well, Frankfurt is the most expensive location, at € 18.80/m², followed by Düsseldorf (€ 14.00/m²), Hamburg (€ 13.90/m²), Munich (metro, € 13.67/m²), Berlin (€ 12.60/m²), and Stuttgart (€ 11.12/m²).

Forecast: demand to remain high for the time being, vacancies to continue to decline
The recent dimming of prospects on the overall economy has not yet affected demand for new office space. “Based on the requests for space we have received, we currently forecast take-up of space for 2011 to be about 7% above the result for the previous year,” says Trumpp. Combined with high advance leasing rates for the relatively few office properties scheduled to become available on the market, this should lead to a continued downward trend in vacancies. In some space segments, minor shortages of space have already been noted, with rising rents as a result. “In general, we expect that in light of current demand, potential for further increases in prime rents will be limited to certain cities, even though prime rents rose up until the midyear mark,” Trumpp says.