Frankfurt Office MarketView

Transcription

1 Frankfurt Office MarketView Q3 214 Quick Stats Q3 214 GDP Q % Q-o-Q Q-o-Q Take-up 97, sq m Vacancy 1.34m sq m Prime rent 38. /sq m Prime yield 4.7% GDP Q % Q-o-Q IFO BUSINESS CLIMATE INDEX 14.7 Sept. 214 OVERVIEW Global Research and Consulting BA-X 17 Sept. 214 UR FFM 7.3% Sept. 214 Economy Frankfurt is both Germany s finance capital and an international financial centre. For decades, the city has been the headquarters of important regulatory authorities, principally the European Central Bank. As the European regulatory system expands, the city on the Main is benefiting in particular from this development. This is already having an effect on the office letting market. In the third quarter, the Deutsche Bundesbank (German Central Bank) and the state-backed Kreditanstalt für Wiederaufbau expanded its branches and leased new space. A survey of 4 German companies in the banking and financial services sector carried out by the Center for Financial Studies in the third quarter showed that consultancies benefit in particular from new regulations in the banking sector, and are taking on new staff and looking to invest further. 1 Completions 1,8 sq m Hot Topics Office space take-up down in the year to date due to lack of large-scale lettings Third quarter is strongest quarter s office space take-up Prime rent remains stable slight rise in average rent Limited new completion pipeline expected for 21/216 Continued high demand from core investors means stable prime yield at low level Rising investor demand for refurbishment properties and locations outside the CBD Office market In the first nine months of 214, 262,4 sq m was taken up in the Frankfurt office letting market. This equates to a reduction in take-up of around 18% compared to the same period last year. This development was principally caused by the significant decrease in letting volume in the larger size categories. The achievable prime rent remained stable at 38./ sq m/month. The vacancy level decreased considerably by 22% year-on-year. For the full year 214, we expect an extraordinarily high volume of new-build space, primarily due to the completion of the new European Central Bank building. A below-average office space pipeline is expected for 21 and 216, based on current information. Investment market The total investment volume in the Frankfurt commercial property investment market gained significant momentum in the third quarter, with 81m, which equates to a rise of 32% compared to the previous quarter. However, the cumulative investment volume in the first three quarters was 23% below the excellent result of the previous year, and a remarkable 43% in excess of the - year average of the first three quarters. This reflects the continual rise in demand and marketability of commercial property investments in the finance capital, Frankfurt. Given the number of imminent investment transactions, momentum will increase strongly by the end of the year and prime yields will remain under pressure. Table 1: Office market key data Q3 213 Q3 214 Y-o-Y Stock, million sq m % Take-up, cum. 1, sq m % Vacancy, million sq m % Vacancy rate, % %-Pts. Prime rent, /sq m/month % Prime yield, % %-Pts. Capital value index (Q = 1) % 214, GmbH

2 1, sq m % 1, sq m Q3 214 Frankfurt Office MarketView TAKE-UP The third quarter closed with take-up of 97, sq m and was therefore the strongest quarter of 214 to date. The letting of 1,4 sq m to the headquarters of the Deutsche Bundesbank in Trianon on Mainzer Landstrasse in the immediate vicinity of project developments such as the Marienbogen, Main Zero and T8, and the second largest letting of 7,8 sq m to the Kreditanstalt für Wiederaufbau (KfW) in the IBC contributed much to this performance. The cumulative decrease in the office space take-up volume in the first three quarters of 18% to 262,4 sq m compared to the same period last year, is due to the overall lack of large-scale deals and to the limited supply of high-quality space in central locations, which means that there is little pressure to relocate. Instead, companies have often been extending their existing lease contracts. Lease extensions have totalled almost 1, sq m in the year to date, equating to around 37% of the cumulative take-up, but are excluded from the take-up statistics. The most active submarket by far in terms of take-up in the first three quarters of 214 was the Banking District, which accounted for 29% of the total take-up. This was followed at some distance behind by the central submarkets Westend (12%), City (1%) and City West (1%). The largest lettings in the first nine months of the year were to Deutsche Bank in Main Zero with a total of 32,6 sq m and the aforementioned letting to Deutsche Bundesbank in Trianon. This is also reflected in the take-up by sector. At 3%, the banking and financial services sector was by far the most dominant tenant group in the year to date. Legal advisors and chartered accountants followed in second place, but accounted for a share of only 9% of the total take-up volume. The IT sector was in third place at around 6%. VACANCY Compared to the previous year, the vacancy rate across the entire market fell by a significant 3 %-points to just 11.% at the end of the third quarter, and is therefore well below the 1-year average of 1%. The vacancy level also fell considerably by 22% to its current level of 1.34m sq m of office space. This positive development in vacancy in the first nine months of 214 was principally due to demolitions and changes of use of mainly vacant office buildings totalling almost 2, sq m, which is almost three times the previous year s level. Conversions were mainly of obsolete offices into residential space, due to a shortfall of residential space in Frankfurt. Chart 1: Office space take-up Chart 2: Office space take-up (cumulated, %) by sectors* - Top - Chart 3: 2, 2, Remaining sectors 4% Real Estate % Q1 Q1 Q3 Q4 Transport, Traffic % 1-year average: 462,9 sq m IT 6% Legal Adv., Chart. Acc. 9% Office space vacancy 1-year average: 1. % Banks, Financial S. 3% *in total 2 sectors The supply of office space in the Frankfurt market area is currently around 1.4m sq m, which equates to a supply rate of 12.%. In addition to vacant areas and space available for sub-letting, speculative completions in the next twelve months are also included. Due to the many demolitions and very limited volume of speculative completions, the supply volume has fallen by 21% over the past twelve months. The volume of office space available for sub-letting has also fallen 2% year-on-year, which is a positive sign for Frankfurt as an economic location. 1, 1, Q Vacancy Vacancy rate 214, GmbH

3 1, sq m Index Q = 1 /sq m/month Chart 4: Prime rent & Weighted average rent Q3 Prime rent Weighted average rent Chart : Prime office rent index RENT The weighted average rent based on all lettings over the last twelve months rose by % year-on-year to per sq m/month by the end of September. This is principally due to the high level of demand in central locations. The sustainable achievable prime rent for the well appointed office buildings in the city centre remained stable at 38. /sq m/month. The prime rent is expected to rise in the medium-term, due to the fall in supply of new and highquality space in the CBD. Of Frankfurt s 2 submarkets, the highest weighted average rent was recorded in the Banking District, at 26.4 /sq m/month. The other two leading submarkets were the other CBD districts of City and Westend, with /sq m/month and 2.9 /sq m/month respectively. As the achievable prime rent has remained stable for years, the Frankfurt Rental Price Index has remained unchanged at 219 index points since the final quarter of 28. In contrast, the index for Germany has risen slightly by.9 %-points compared to last year, due to a rise in achievable prime rents in Hamburg and Munich. Q3 214 Frankfurt Office MarketView Germany Frankfurt Chart 6: Office space future supply 4 4 PIPELINE For the full year 214, we expect an extraordinarily high completion volume totalling 261, sq m of new or fully refurbished office space in the Frankfurt market. Of these, 4% has already been completed in the year to date. In the fourth quarter, the high completion volume of 12, sq m is principally due to the large-scale owner-occupied European Central Bank building with 14, sq m in the East submarket, which means that the 214 volume will be around one quarter higher than the long-term average. Over the next few years, the completion pipeline will subside to below-average levels of 14, sq m in 21 and 1, sq m in 216. The long-term average from 24 to 213 is almost 28, sq m, which means that these volumes will be 33% and 2% below that level respectively, providing that no further projects appear in the next few quarters. The relatively low completion volume and high level of demand for high-quality space, particularly in central locations, means that there is an urgent need for speculative project developments year average: 27,7 sq m Completed Speculative Pre-let Owner-occupied The current volume of office space completions which are still un-let in 21 (2%) and 216 (%) will significantly reduce by the time they are completed. Speculative completions expected in the CBD such as MA RO (8,9 sq m) and Vista (7, sq m) relieve the scarcity of supply situation for high-quality centrally located space in the office letting market to some extent, but only from the end of 21 to mid-216 at the earliest. According to current information, supply will increase slightly in the City submarket from the end of 21 with the 1, sq m Turm-Center and from the start of 216 with Opernplatz XIV with its 7, sq m , GmbH

4 Index Q = 1 % 1, sq m Q3 214 Frankfurt Office MarketView PIPELINE BY SUBMARKETS At the end of 214, the owner-occupied new European Central Bank building will be completed, which means that the Frankfurt East submarket will lead the pipeline by submarket, but probably for the last time. Due to the increased demand for high-quality office space in the city centre, there appears to be a slight increase in building activity in the Banking District, in particular along Mainzer Landstrasse, Taunusanlage and Neue Mainzer Strasse. However, a large proportion of this office space (6%) will be completed in 216 at earliest, and 4% of projected office space in this submarket up to the end of 216 is already pre-let. According to current information, only 14% of new-build space is still available to let in the Railway Station District. In the City submarket, the completion of the as yet un-let Turm-Center with around 1, sq m office space from year end 21 is likely to bring about a slight easing of tension in the scarcity situation. In the more peripheral City West submarket, the St. Martin Tower is currently under construction, and its 23, sq m office space is still un-let. INVESTMENT The third quarter saw the strongest turnover performance of 214 to date, with a commercial property investment volume of 81m. In particular, there has been a significant increase in transactions in the lot size categories over m compared to last year. The number of transactions and the investment volume in these size categories has almost doubled and, in addition to institutional investors, it is increasingly private investors who have been turning to property investments because of the much higher returns compared to bonds and the money markets. As a result, the average investment volume halved to around 26m by the end of September. The most sought-after asset class in the first three quarters was office property with a share of 8% of the total investment volume. The main reason for this high level was the sale of the police headquarters (part of the Leo I portfolio) by Commerz Real to Patrizia for well over 3m, the sale of the DB Schenker Headquarters Alpha Rotex in the new Frankfurt district of Gateway Gardens in the vicinity of Frankfurt Airport by Gross und Partner/OFB (Helaba Gruppe) to the Zurich Group, and the sale of the Chart 7: Office space future supply (Q ) by submarkets* -Top - Chart 8: Prime yield, capital value and benchmark yield *in total 2 submarkets Q3 214 WestendCarree properties by Tishman Speyer to IVG for over 1m each. The second highest investment volume was hotel properties with a share of 17%, which was a significant rise in investment volume compared to last year (+83%). It is worth mentioning that a high proportion of around 6% of all hotel transactions were part of portfolio sales, including the sale of the InterContinental in the Railway Station District by GSSG to Katar Hospitality as part of a pan-european portfolio. The largest single transaction was the sale of the Frankfurt Hilton with a volume of more than 11m by London & Regional to an international private investor. The deal was done through Hotels and was the largest single asset sale in the whole German hotel segment in the current year to date. The share attributable to portfolios increased across all asset classes and indeed doubled compared to 213. In the fourth quarter, the high level of demand for high volume investment alternatives in the Frankfurt commercial property market will be particularly evident, as there are a number of large-scale transactions due to be completed, and this will mean that a full year result of around 4bn cannot be ruled out. The high level of demand means that the prime office yield remains stable at its low level of 4.7%. There is yield compression in the market for properties in secondary locations, as investors willingness to take on risk increases and they turn increasingly to properties offering value enhancement potential. In addition, we have registered increased investor interest in project developments in central office market locations East Bank. D. Rail. St. D. Speculative Pre-let Owner-occupier Capital value index Prime yield (%) 1Y Bund (%) City City W FORECAST The suspension of letting decisions by companies and the traditionally strong final quarter mean that expects a rise in letting volume in the fourth quarter, and office space take-up could still reach the 4, sq m mark. The achievable prime rent will remain stable until year-end. In the medium-term, the decrease in supply of new and refurbished space in the CBD will mean that the prime rent is likely to rise. The vacancy level will fall further, particularly in the case of well-appointed office space in central locations. There will be a below-average completion pipeline in the next few years. 214, GmbH

5 Table 2: Submarket key data Cumulated Take-up sq m Future supply Q sq m Vacancy rate % Rental band /sq m/month Weighted average rent /sq m/month Railway Station District 14,6 48, Banking District 7,9 84, Office Location/Niederrad 7, City West 27,3 23, Eschborn 13, Frankfurt City 26,9 2, Frankfurt Airport 4, Frankfurt North n/a Frankfurt East 16,1 11, Frankfurt South 1, n/a Frankfurt West, Merton District 12, Trade Fair/Europe District 1,2 21, n/a Niedereschbach 1, n/a Offenbach Kaiserlei 1, n/a Rebstock n/a Sachsenhausen 1,6 13, Sossenheim/Rödelheim/Hausen 8,3 3, Westend 3,6 17, Westhafen 4, TOTAL 262,4 39, Q3 214 Frankfurt Office MarketView 214, GmbH

6 Q3 214 Frankfurt Office MarketView For more information about this MarketView, please contact: Research Germany Dr. Jan Linsin Senior Director Head of Research Germany 6323 Frankfurt t: e: Johannes Dreher Analyst 6323 Frankfurt t: e: Agency Frankfurt Carsten Ape Managing Director Head of Agency Germany 6323 Frankfurt t: e: Alexander Riegel Director Co-Head of Agency Frankfurt 6323 Frankfurt t: e: + FOLLOW US GOOGLE+ FACEBOOK 6 Global Research and Consulting This report was prepared by the Germany Research Team which forms part of Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by GmbH clients, and cannot be reproduced without prior written permission of GmbH , GmbH