“Thanks to several large-volume deals by owner-occupiers, the drop wasn’t as steep as it could have been,” says Peter Bigelmaier, Head of Office Letting at Colliers International Germany. “While leasing performance has declined by around 9 percent since the end of last year as the result of moderate new demand, occupiers were able to more than double their take-up results year on year,” he continues. The largest lease agreements and owner-occupier deals in the first six months of the year were signed by Commerzbank in Frankfurt for almost 45,000 m² of office space in the former headquarters of the Deutsche Börse stock exchange, by Allianz in the city of Unterföhring near Munich for some 36,000 m² and by the Deutsche Rentenversicherung insurance company in Stuttgart (approx. 20,000 m²) and Berlin (approx. 17,500 m²).

Moderate market activity expected in prime locations
Our take-up analysis indicated various trends. While the Dusseldorf office market generated a year-on-year plus of almost 8% with take-up of 147,500 m², Frankfurt (-1.2% to 213,600 m²), Hamburg (+2.3% to 220,000 m²) and Munich (+0.8% to 323,100 m²) only exhibited slight fluctuation. In contrast, take-up in Berlin fell by some 11% to 255,700 m², which can be attributed to the very low number of large volume leases. “Although considerably more lease agreements were signed in Berlin between January and June, only two deals for 5,000 square meters made it onto the books in the first half of 2013. As many as seven had already been recorded by this time in 2012,” says Andreas Trumpp, Head of Research at Colliers International Germany. In relation to the other locations, we saw the most significant decline in Stuttgart with a minus of around 12% and take-up of 86,100 m². Compared to the previous year, there was particularly a lack of lease agreements for more than 1,000 m² in the capital of the German state of Baden-Württemberg. Ten agreements were signed this year compared to last year’s twenty-six.

Positive net absorption – office vacancy rate continues to decline slightly

A total of almost 6.3 million m² were available for short-term lease in the six office markets under review at the end of the first half of 2013, around 480,000 m² less than in the previous year. This caused the vacancy rate to decrease from last year’s average 8.4% to the current 7.7%. “The ongoing positive net absorption trend is decisive in this context. It was recorded at more than 400,000 square meters during the first six months of the year,” Andreas Trumpp emphasizes. Berlin, Frankfurt and Munich experienced the most significant year-on-year decline in vacancy rates. The vacancy rate in the German capital at the end of the first half of 2013 came to 6.3% (7.5% previous year), 13.7% in Frankfurt (14.7% previous year) and 5.9% in Munich (6.4% previous year). The low volume of speculative office space over the past two years contributed to this development. “Based on our research, around 2.6 million square meters of new office space will become available by the end of 2015, but almost two-thirds has already been leased out,” Mr. Trumpp says.

Differing trends in prime and average rent
During our analysis of prime and average rent, we noticed that these are developing differently in a year-on-year comparison. “While there were some still considerable rent increases in a comparatively small prime segment compared to last year, we also saw a prevalent trend toward more affordable space segments and locations among the majority of rentals,” Andreas Trumpp states. Prime rent in Frankfurt, for example, increased by almost 14% to €37.50/m². At the same time, average rent experienced a year-on-year decrease by around 11% to €17.00/m². The Munich market underwent a similar, if not quite as pronounced, development. Prime rent there increased to €31.50/m² (+5%), with average rent decreasing to €14.55/m² (-1.5%). Prime rent in Dusseldorf was recorded at €27.50/m², influenced by some very high-priced leases in the CBD, 10% higher than last year. CBD leases also impacted average rent, which went up by 7% to €14.90/m². Prime rent in Berlin (€22.00/m²) and Stuttgart (€20.00/m²) remained at last year’s level. Hamburg experienced a slight year-on-year decrease (-2%) at €23.50/m². For the reasons mentioned above, average rent in Hamburg dropped to €13.70/m² (-6%) and in Stuttgart to €11.50/m² (-5%) while a strong, mid-price segment spurred an 8% increase in average rent in Berlin to €13.50/m².

Outlook – Market to pick up, but only after delay
“The low volume of new enquiries at the end of last year and beginning of this year, particularly in the segment of over 5,000 square meters, is starting to make itself felt in the take-up figures,” Peter Bigelmaier summarizes. “Even though the number of enquiries is slowly picking back up, we are going to stick with our forecast of 2.5 to 2.6 million square meters of take-up and an average year on the office leasing market in 2013, because we’re looking at an average of six to twelve months between the time a potential tenant starts looking for property and the time a lease agreement is actually signed,” he adds. We have almost reached the peak of the current market cycle for prime rent. Due to lower lease take-up in the next months, we can expect to see a lateral trend in terms of vacancy rates.