January 10, 2013, Munich – In Q4 2012, office tenants were once again ready to do business and hit the market with a year-end spurt generating take-up of around 2.77 million m² in six German office markets: Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Munich and Stuttgart. Andreas Trumpp, Head of Research at Colliers International, Germany, says, “Although we experienced a decline of around 9 percent from 2011, it was to be expected considering the above-average number of major deals we recorded that year. At the end of the day, we even managed to somewhat exceed our expectations for 2012.” Results for the last office leasing year were up by around 126,000 m² from the ten-year average of 2.64 million m². In addition, a considerable portion of the drop in sales can be attributed to the fact that owner-occupier take-up decreased by half.
Only Frankfurt and Berlin increase take-up
Year on year, take-up in Berlin was higher by almost 5% at 637,100 m², contingent upon factors including several leases with Zalando totaling at around 60,000 m². The increase in Frankfurt am Main was even more considerable. Significant lease agreements with clients such as Lurgi GmbH for around 26,000 m² in the Mertonviertel district and a law firm for around 8,500 m² in the Bankenviertel district, which were concluded before the end of the year, were partially responsible for take-up of around 500,300 m², an almost 13% increase compared to the previous year. In Düsseldorf we recorded a result at 305,000 m²
(-2%) similar to that from 2011. The three cities mentioned above emerged better than expected at the start of the year. Düsseldorf and Frankfurt particularly benefited from a strong Q4. In Munich and Stuttgart, take-up was recorded at 700,900 m² and 191,000 m², respectively, resulting in a decrease of around 19% and 33%. This can primarily be attributed to the fact that sales from companies from the manufacturing industry more or less stabilized. The drop in the Hamburg office market, where take-up was down by around 20% at 430,000 m², results, among other factors, from the major leasing decision made by the Department for Urban Development and the Environment in 2011 for around 45,000 m². No leases of this scale were concluded in 2012.
Lowest total office vacancy rate in 10 years
Due to the low new activity in building construction, conversion of older existing properties and above-average take-up, office vacancy had sunk by the end of the year to around 6.5 million m² in the cities surveyed with an average vacancy rate of 8.1%, the lowest it has been in ten years. In 2002, office vacancy was recorded at around 4.8 million m² (6.1% vacancy rate) and reached its peak in 2010 at more than 8.0 million m² (10.0% vacancy rate). Current vacancy rates range from 5.4% in Stuttgart to 13.9% in Frankfurt. Andreas Trumpp comments, “The net absorption of almost 873,000 square meters for the second year in a row deserves particular mention.” He adds, “The volume of completed new buildings has fallen considerably over the past two years, mostly due to the lack of speculative project developments, and is not expected to regain its pre-economic crisis level in the coming years.” Based on the current situation, a total of around 2 million m² of new office space will hit the market in 2013 and 2014, most of which will be in Hamburg (468,000 m²), followed by Munich (approx. 459,300 m²) and Frankfurt (418,700 m²). Pre-lease rates in the top 6 cities of an average of 66% in 2013 and 63% in 2014 illustrate how limited the number of office buildings being constructed in speculative development projects is.
Significant increase in rent levels in Düsseldorf and Stuttgart
Compared to the previous year, nominal prime and average rental rates were predominantly stable at the end of the year. Frankfurt came out on top in 2012 as well with prime rent rates at €35.00/m², the same as in 2011. Rent levels in Düsseldorf increased with very high priced, large-scale rentals in central locations triggering an increase of 13% to €26.00/m². Rent levels in Stuttgart (+6% to €20.00/m²), Munich (+3% to €30.60/m²) and Hamburg (+2% to €24.00/m²) experienced more modest increases. In Berlin prime rent levels were recorded at €22.00/m², as in the previous year. In view of average rent levels, figures for front runner Frankfurt (+1% to €17.50/m²) and Munich (+1% to €14.59/m²) remained almost unchanged. Average rent levels increased considerably in Düsseldorf (+10% to €14.90/m²), Stuttgart (+7% to €12.40/m²) and Berlin (+4% to €13.00/m²). Hamburg was the only city where average rent levels fell by 4% to around €14.00/m².
Outlook – Average take-up in 2013 with stable vacancy rates
In consideration of the information we have regarding demand as well as the currently uncertain economic conditions, we expect to experience take-up of around 2.5 to 2.6 million m² in 2013, putting it at the long-term average. Mr. Trumpp concludes, “Despite the fact that completion volumes are once again slightly on the increase, we expect to see stable vacancy rates in most of these cities due to high rates of pre-leases and the conversion of numerous, older office properties, which will be re-classified for other usage and removed from inventory.”