1 Market report Munich Mid-year report 215 Office Leasing and Investment Accelerating success.
2 Office Leasing Munich Statistics Population 1,5,56 Unemployment Rate 4.4 % Employees Paying Social Security Contributions 754, Purchasing Power Index Lively leasing activity spurs another considerable drop in vacancy Trade Tax Multiplier 49 % Per Capita Disposable Income 27,755 The Munich office leasing market experienced a robust trend during the first half of the year. Take-up was recorded at 35,7 sqm, reflecting a year-on-year increase of around 2, sqm. Net leasing performance (excluding owner-occupiers) came to 287,4 sqm, down almost 2% from mid-214. Take-up rates were relatively Sources: Stadt München, Bundesagentur für Arbeit, Nexiga Fast Facts OFFICE LEASING Office Space Take-up 35,7 m² Leasing Take-up 287,4 m² Prime Rent 33.9/m² Average rent 15.2/m² Vacancy rate Take-up of Space 4.4 % Office Space Stock (incl. periphery) 22.7m m² Take-up of space in 1, m2 1, Q1-Q2 Leases 2 Owner-occupiers Market Report Munich Mid-year report 215 Office Leasing and Investment
3 similar across all space segments. The large space segment recorded the most activity. Nine deals including two owner-occupier deals exceeded the 5,-sqm threshold and totaled at a combined 74,8 sqm, accounting for a 24% share. The large space segment was followed by the space segment of between 2,1 and 5, sqm. 64,9 sqm were leased in this segment with 21% of total take-up. This segment was followed closely by the space segment of between 51 and 1, sqm (61,8 sqm, or 2%) and of up to 5 sqm (58,1 sqm, or 19%). The least amount of space was taken up in the segment of between 1,1 and 2, sqm (46,1 sqm, or 15%). Supply and Vacancy For the first time since 22 less than 1 million sqm of office space was available for immediate tenancy on the Munich market. With office space stock of million sqm, the 991,8 sqm of vacant space reflects a vacancy rate of 4.4%. Only 3.7% of office space, or 638,9 sqm, was vacant within city perimeters. 234,9 sqm of vacant space has been absorbed in the city over the past twentyfour months. Some submarkets are currently experiencing a supply bottleneck, especially when it comes to high-end offices (e.g., newbuilds). Vacancy in the city outskirts dropped by 77,8 sqm to 352,9 sqm compared to mid-214, putting the vacancy rate there at 6.7%. Despite the fact that space is becoming increasingly harder to come by, the number of project developments in the pipeline continues to be below average. Even though around 229, sqm of office space is expected to be completed in 215, 72% has already found tenants. 155, sqm of this space will be located within city limits and the remainder in the surrounding area. Based on current developments, only 14, sqm of new office space will become available in 216. At the end of Q2 215, 53% of this space had already been leased or taken up by owner-occupiers. The number of speculative project developments remains within reasonable limits as a result. More and more space is being taken up in the large development areas that have dominated the office market over the past few years. The cornerstone was recently laid for NOVE by Citterio at the last building site at Arnulfpark, Microsoft headquarters and TwinYards are scheduled to be completed at Parkstadt Schwabing within the next twelve months, and the new Brainlab headquarters will be built on the former Tower site at the Riem trade fair grounds. Because space for new-builds is limited, we will be seeing selective developments, buildings with more stories and stock-building refurbishments in Munich in the future. The next large-scale downtown development site is the Werksviertel site near the Munich East train station. The plan is to build a new district at the former industrial site, which is currently being primarily used for cultural events and activities. The HIGH- RISEone project, featuring around 18,7 sqm, is already under construction. Epcos has leased around 8, sqm there for its company headquarters. Another project, Werk 3, is scheduled to be completed soon. Within the scope of the project, a former factory is being converted into around 11, sqm of office space. A high-rise complex is also currently under construction in the east of Munich. Bavaria Towers, which is located at Vogelweideplatz and comprised of a hotel and several office towers, will become a landmark project due to the fact that it encompasses more than 7, sqm of office space in total. The first offices should be ready to move into by 217. Market Overview Location Office Space Take-up in ² incl, Owner-occupiers Letting Take-up in m² Rent Range in /m² Average Rent in /m²/ month Vacancy in m² Vacancy Rate in % Completed Projects in 215 in m² Centre 1 51,36 51, , ,387 Centre North-West 2 29,385 29, , ,255 Centre North-East 3 1,641 1, , Centre South-East 4 2,918 2, , ,724 Centre South-West 5 37,27 37, , ,3 City North-West 6 18,83 18, , ,191 City North-East 7 43,36 36, , ,82 City South-East 8 19,562 8, , ,118 City South-West 9 25,342 25, , ,163 City 255, , , ,22 Periphery South-West 1 3,56 3, , ,364 Periphery North-West 11 2,11 2, , Periphery North-East 12 34,734 34, , ,956 Periphery South-East 13 1,34 1, , Periphery 49,835 49, , ,32 Total 35,73 287, , ,54 Research: Tobias Seiler, Colliers International 3
4 Take-up of Space by Size (in 1, m² and %) and Number of Lease Contracts incl. Owner-occupiers Take-up by Industries Top Five (in m²) and share of Total Take-up (in %) Prime and Average Rents (in /m²) ,1 19% 2% 15% 21% 24% up to 5 Take-up 61,8 72,4/24% 57,9/19% 4,3/13% 26,5/9% 23,9/8% up to 1, 46,1 up to 2, 64,9 up to 5, ,8 from 5,1 Number of Lease Contracts Manufacturing Industry Information and Telecommunication Consulting Firms Public Administration, Organisations, Sozial Institutions Banking and Finance Demand Activity by companies from the manufacturing industry, which tends to experience cyclical fluctuations in terms of take-up on the leasing market, is currently on the rise, putting this industry in first place with 72,4 sqm in take up, or a 24 % share. IT businesses with 57,9 sqm (19%) and consulting firms with 4,3 sqm (13%) followed in the ranks. The latter signed the highest number of leases, many of which, however, were in the small space segment. US furniture manufacturer Steelcase signed the largest-scale lease; the company will be moving its Learning + Innovation Center into 13, sqm of office space in the Brienner Forum at Königsplatz. The City of Munich s Human Resources Division signed a lease at the start of the year for approximately 1,1 sqm on Landsberger Straße near the Hackerbrücke bridge. 84% of total take-up was generated within Munich city limits with the remaining 16% taken up in the surrounding area. This shows that the trend we have been seeing for some time now continues with tenants preferring city locations to office locations in suburban communities. 77% of take-up (not including owner-occupiers) was recorded for stock or renovated properties. Another 17% focused on properties that are currently in the project or construction phase. Only 6% of take-up was recorded for new office space as very few new-builds are currently listed. Leases signed for space in newbuilds generated a 12% share on average in Rents Curiously, high leasing activity and a considerable drop in vacancy caused rents to fall. Because the best rental space has already been taken up in many locations, tenants turned to space in other areas with lower asking rents due to location. This resulted in lower rents being paid, causing average rent to drop by almost 4% to 15.2 per sqm. Tenants paid average rents of per sqm within city limits, down 3% from the end of 214. Due to several leases signed in new-builds in the city outskirts, average rents there experienced a considerable 1% increase to 1.76 per sqm. Asking rents, on the other hand, did not drop and even increased in some areas. Prime rents were recorded at 33.9 per sqm, reflecting a year-onyear decrease of around 2%. This decrease can also be attributed to the scarcity of space available in top locations near Maximilianstraße, which is why only a few leases were signed. Rents for leases signed in 16% of total take-up exceeded the 2. per sqm mark. This share only came to just under 12% in 214, a good indication of how coveted high-end space is. The highest rents were paid in the Munich Altstadt submarket. Average rents in this submarket were recorded at per sqm. Rents appear to have dropped moving from north to south in the rest of the city as the majority of high-end office locations, with higher rents accordingly, are located in the northern part of the city. New-build construction activity continues to be more present in the northern city submarkets. 211 Prime Rent Q1-Q2 Average Rent 4 Market Report Munich Mid-year report 215 Office Leasing and Investment
5 Property Index Immax The IMMAX property index indicates the supply and demand trend on the office market. It indicates the relationship between supply at a specific point in time and take-up of office space over the previous twelve months. Supply figures include current vacancies (space available within 3 months) and potential space that will become available within twelve months thanks to new developments and newly-vacant existing space. IMMAX 7/215 = = ,169,495 m² 595,464 m² The IMMAX as an indicator of competition in terms of available space fell below 2 for the first time since the end of 21. That means that 1.96 sqm of office space is available for each square meter leased. In view of ongoing decreasing supply and good general conditions for increasing take-up activity, the IMMAX will most likely continue to fall in the coming quarters. Vacancy (in 1, m 2 ) and Vacancy Rates (in %) 2, 1,5 1, 5 7.1% 1, Property Index IMMAX 6.1% 6.1% 5.1% 4.4% 1, , , Summary and Outlook The slight economic upturn recently experienced in Germany can be felt on the Munich office leasing market. Even though take-up was not unusually high, it was substantial. Businesses are optimistic about the future for the most part, which will result in expansion and increasing demand for office space. The fact that a noticeably higher number of businesses are already looking for space will lead to an increase in take-up in just a few quarters. We expect take-up for 215 (without owner-occupiers) to fall within the long-term average of 6, sqm. Limited supply, however, could slow this trend down. This will make it more difficult for companies to move to new locations due to lack of office space alternatives, requiring them to find temporary solutions at their current offices and causing an increasing number of businesses to extend their leases. The fact that a low number of projects are scheduled for completion in the near future promises no relief, particularly in view of the high preleasing rate for space currently under construction. 7/15 1/15 7/14 1/14 7/13 1/13 7/12 1/12 7/11 1/11 7/1 1/1 7/ Completion Volume (in 1, m²), thereof Pre-Let / Owner-occupied New Office Space Pre-Let / Owner-occupied Research: Tobias Seiler, Colliers International 5
6 Investment Considerable increase in investment volume. 5.5 billion could be generated by the end of the year. Tobias Seiler Associate Director Research Phone Alexander de Oliveira Kaeding Senior Consultant Research Phone Fast Facts Investment Transaction Volume 2.779m Largest Buyer Group: 34 % Open-ended funds/special funds Largest Seller Group: 31 % Developers/Constructors Most requested Type of Property: 72 % Office Prime Yield Office 3.75 % Commercial Transaction Volume (in billion ) Q1-Q2 Transaction Volume Activity on the Munich investment market for commercial real estate increased once again during the first half of the year. Assets changed hands for almost 2.8 billion, reflecting a 35% increase compared to mid-214. That put mid-year results for 215 just slightly below the results for the entire year of 211 where take-up totaled at 2.9 billion. Take-up was primarily driven by specific high-volume transactions with the five largest deals to date totaling at more than 1 billion. These include AXA Real Estate Investment Managers purchase of Elisenhof at Munich central station and the sale of the 88north office building to Amundi Real Estate. Because competition for high-volume assets in central locations has increased, many investors are looking to other good locations, and the area surrounding Munich proved to be a lively component of the Munich investment market during the first half of the year. Buyer and Seller Groups Similar to past quarters, open-ended real estate funds, special funds and pension funds were involved in the most deals. Open-ended real estate funds and special funds of miscellaneous institutional investors purchased property on the Munich market for around 93 million, reflecting roughly one-third of total volume. These were followed by pension funds and private investors with 34 million and 276 million, respectively. A large number of insurance companies and pension funds are looking to increase their real estate assets due to ongoing inflow of capital and a lack of investment alternatives. Foreign investors in particular are interested in investing in high-volume deals as can be seen in AXA Investment Managers purchase of Elisenhof. Project developers and development companies led the pack in terms of selling properties for slightly less than 84 million in total. Open-ended real estate funds and special funds were active as well, selling commercial assets for 624 million. Private investors and especially opportunistic investors, who have been very active over the past twelve months, also took advantage of the favorable market conditions to sell real estate in the Bavarian capital for an average of 384 million and 37 million, respectively. International investors share in transaction volume increased to more than 5% (41% at mid-214). The open-ended funds and special funds mentioned above dominated the international investor market as did foreign pension funds and insurance companies. The highest-volume deals signed by international pension funds 6 Market Report Munich Mid-year report 215 Office Leasing and Investment
7 during the first half of the year included the purchase a share of the Siemens site in the Munich Perlach district by the Chinese sovereign fund, Ginkgo Tree. In addition to the more established market players, an increasing number of new investors, primarily foreign, are trying to get their foot in the door on the Munich market, and we can expect them to invest significantly in the Munich commercial real estate market during the remainder of 215. Transaction Volume by Buyers Group (Millions of ), Share (in %) 1, 75 34% Investment Properties Office property once again turned out to be the investor favorite. Sales of high-volume office buildings and mixed-use properties in established office locations dominated the market in the first half of the year. Around 8% of total transaction volume, or roughly 2.2 billion, was generated in these two asset classes. Investment in hotel properties trailed considerably with a 9% share and a transaction volume of 249 million. These results show that the popularity of hotel assets on the Munich market will most likely increase, and we expect this trend to continue in view of the lively hotel construction activity in the Bavarian capital. Investors poured around 15 million into retail assets during the first six months of 215. Roughly 1 million was invested in industrial and logistics properties, almost double mid-214 results. Prime yields for high-end, fully let office properties in premium locations once again fell over the course of the year to a current 3.75%, however (down.25 percentage points compared to the previous quarter). Ongoing high demand will most likely continue to cause prices to rise and place increasing pressure on yields in B and C locations as well. The same applies to the other asset classes. Gross initial yield for buildings featuring an office-retail mix in top locations currently comes to 3.% (down.5 percentage points compared to the previous quarter). Summary and Outlook Investment volume at mid-215 exceeded expectations slightly but is in line with the trend on other top markets in Germany. As long as general conditions remain stable, Munich is expected to remain one of Europe s most lively investment locations in the coming quarters. Investors from Asia as well as France continue to be very interested in investing in Munich. High market liquidity will continue focus on stable, secure locations, one of which is Munich, in the second half of the year. In addition to lively activity in core locations, we can expect to see more deals signed in good office locations, and assets with upside potential are increasing in popularity as well. Based on the above, we can realistically expect 215 to surpass 214 s results, which were already high at 5.2 billion, with an end-of-the-year result for 215 of 5.5 billion Transaction Volume by Sellers Group (Millions of ), Share (in %) 1, % Types of Properties (in %) Mixed-use Properties Industrial/LogisticsBuilding Sites Retail Hotel % Open-ended Real Estate Funds/Special Funds Pension Funds 22% 14% Developers/Constructors Open-ended Real Estate Funds/Special Funds Private Investoren/ Family Offices 1% 1% 11% 8% Private Investors/ Family Offices Insurance Companies Developers/ Constructors 8% Opportunity Funds/ Private-Equity-Funds Listed Real Estate Companies 7 Offices Research: Tobias Seiler, Colliers International 7
8 52 offices in 67 countries on 6 continents United States: 14 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 18 Authors: Tobias Seiler Associate Director Research Alexander de Oliveira Kaeding Senior Consultant Research Colliers International München GmbH Dachauer Straße 63 D 8335 München Phone billion in annual revenue 75 billion in transaction volume with more than 8, investment- and leasing-deals 16 Million spuare meter under management 16,3 Professionals worldwide About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,3 professionals operating from 52 offices in 67 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 1 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 1 consecutive years, more than any other real estate services firm. For the latest news from Colliers International, visit Colliers.com, or follow us on and LinkedIn. To see the latest news on Colliers International in Germany follow colliers.de Credit Cover arabeska, München, Bayerische Versorgungskammer, ADRIAN BECK PHOTOGRAPHER Copyright 215 Colliers International München GmbH This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s) All rights reserved.