MARKET REPORT 217/218 Accelerating success. Office and Investment Market Munich
Market Overview Office Leasing TOP 7 BERLIN DÜSSELDORF FRANKFURT HAMBURG COLOGNE MUNICH STUTTGART STOCK OF OFFICE SPACE 9.52 19.5 7.6 11.57 13.75 7.85 22.4 7.85 in million sq m OFFICE SPACE TAKE-UP 4,156,7 937, 333, 71,1 622, 32, 984,2 268,4 217 in sq m Change year-on-year in % 6 9-9 29 14-2 26-38 for 218 OFFICE SPACE TAKE-UP 3,167,9 634,3 331,8 462,7 55,13 261, 718,4 254,6 (for the entire year) 1-year Ø PRIME RENT 31.3 27. 41. 26. 21.5 35.6 24.3 in /sq m for 218 AVERAGE RENT in /sq m 19.15 15.4 2. 15.4 12.9 17.3 13.4 for 218 VACANT OFFICE SPACE in sq m 3,652,8 39, 532,4 1,14,9 625, 314, 535,9 164,6 VACANCY RATE in % 4.1 2. 7. 9.6 4.5 4. 2.4 2.1 Change year-on-year in basis points -8-1 -5-16 -5-1 -6-7 for 218 The data for Berlin, Düsseldorf, Hamburg and Cologne are related to the respective city area. The data for Frankfurt, Munich and Stuttgart are related to each of the respective markets on the whole. Investment GERMANY TOP 7 BERLIN DÜSSELDORF FRANKFURT HAMBURG COLOGNE MUNICH STUTTGART TRANSACTION VOLUME 57,289 29,954 7,522 2,74 6,912 3,41 2, 6,17 1,2 217 in million Change versus prior year in % 9 4 54 26 13-31 14-1 -37 for 218 TRANSACTION VOLUME (for the entire year) 1-year Ø PRIME YIELD OFFICES in % PRIME YIELD HIGHSTREET RETAIL in % PRIME YIELD INDUSTRIAL & LOGISTICS in % 33,667 18,49 4,9 1,538 3,79 2,912 1,11 4,1 95 3.2 3.75 3.3 3.3 4.25 3.2 3.8 3.2 3.5 2.8 3.2 3.5 2.8 3.1 4.65* *) Refers to the defined logistics market areas 2
City Facts MUNICH Population in 1, 1,543 Employees Paying Social Se cu rity Contributions in 1, Fast Facts OFFICE LEASING MUNICH 217 843 Unemployment Rate in % 3.9 Per Capita Disposable Income in 28,757 Change vs. prior year Office Space Take-up 984,2 sq m 26. % Leasing Take-up 784,8 sq m 7. % Prime Rent 35.6/sq m 2. % Average Rent 17.3/sq m 8. % Vacancy Rate 2.4 % -6 bp* Office Space Stock 22.4 m sq m.5 % Office Leasing Take-up The Munich office market continues on its record-breaking course. 217 saw take-up at 984,2 sq m, reflecting the best result since 2 and a 26 % yoy increase. This impressive result can primarily be attributed to owner-occupiers, who accounted for almost 2, sq m. BMW alone contributed more than 15, sq m through the extension of its Research and Innovation Centre (FIZ) and the company s new Zentrum III located in Freimann. Take-up excluding owner-occupiers came to around 784,8 sq m, up 7 % yoy with 25 leases signed for units over 5, sq m. Large-scale leases claimed a total of 28 % share of take-up. Achieved Rents MUNICH Price range in / sq m Average rent in /sq m 1 Center 17.5-38.5 29.1 2 Center Northwest 12.5-36. 22.5 3 Center Northeast 15.5-32. 21.6 4 Center Southeast 11.-26.5 18.2 5 Center Southwest 12.-26. 17.2 6 City Northwest 11.-21.5 17.2 7 City Northeast 1.-27. 17.5 8 City Southeast 9.-17.5 13.2 9 City Southwest 9.5-2. 14.1 1 Periphery Southwest 9.5-16. 12.7 11 Periphery Northwest 7.-13.5 1.8 12 Periphery Northeast 7.5-14. 1,8 13 Periphery Southeast 7.-12.5 1,4 *) basis points Bergkirchen Gröbenzell 99 Germering 96 Gauting 1 8 Dachau 11 Allach-Untermenzing Karlsfeld 6 95 34 Moosach 11 92 2R 2 Neuhausen-Nymphenburg Maxvorstadt Pasing-Obermenzing 3 Bogenhausen Arabellapark Aschheim Feldkirchen 1 Hirschgarten Arnulfpark Laim München Moosfeld 94 Messe Riem 2 Westend Au-Haidhausen 5 Werksviertel 34 4 8 Gräfelfing 9 Planegg Martinsried Sendling Obergiesing Haar Krailling Neuried Obersendling Pullach im Isartal Unterschleißheim Oberschleißheim Milbertshofen-Am Hart 13 7 Business Campus Garching 8 11 9 Schwabing-Freimann Parkstadt Schwabing Neuperlach Unterhaching 995 13 Garching Unterföhring Neubiberg 12 Ismaning 99 Ottobrunn 388 99 Putzbrunn Hohenbrunn Baierbrunn Oberhaching Taufkirchen 13 Höhenkirchen 3
Rents Average rents on the overall market climbed to 17.3 per sq m (+8 %) due to an increase in asking rents in the municipal area, a trend fueled by increasing shortage of space. Average rents in the municipal area are higher than ever, up 9 % to 19.3 per sq m. Rents in the periphery remained stable and are currently at 11. per sq m. Prime rents rose slightly to 35.6 per sq m, up 2 % yoy. Premium space is mostly going for more than 3. per sq m within the city s Altstadtring (inner ring road) and in high-rises. Office Space Take-up in 1, sq m 1, 9 8 7 6 5 4 3 2 1 95 213 19 14 214 215 5 5 62 653 73 Leasing Owner-occupiers 216 199 785 217 Supply and Vacancy Office vacancy in Munich continued to drop rapidly in 217 due to high take-up. Office space available for immediate tenancy is currently recorded at just under 535,9 sq m (2.4 %). Vacancy within city limits currently comes to 1.6 %, making it increasingly difficult for businesses to find suitable space. Depending on the submarket, vacancy rates especially within the Mittlerer Ring central ring road are at critical levels of between.4 % and 1.8 %. Although vacancy in the areas surrounding the city is comparably high at 4.5 %, high-end space has already become a rare find in many of these locations. Despite the fact that space in some areas is becoming increasingly harder to come by, the number of property developments in the pipeline continues to be low. Around 163,8 sq m of new space was added to the market in 217, and 93 % of this space has already been taken up. Even with 217,5 sq m scheduled for completion in 218, these numbers are still considerably below the 1-year average with pre-leasing rates currently at 47 %. The number of developments scheduled for completion is set to increase significantly in 219 with 35, sq m of new space expected to hit the market. However, since most of these developments were commissioned by owner-occupiers, 8 % has already been taken up. Key Developments Two larger-scale projects along the western section of the main suburban train route got underway in H1 217 with Kap West at Hirschgarten and MY.O in Laim. Construction was also started on a number of projects in the east of Munich in H2 217. Werksviertel continues to grow with HighriseOne soon to be completed and the renovation and extension of the ATLAS high-rise in full swing. Construction of Die Macherei, an urban office and commercial center, began in late 217 on a former factory site in Berg am Laim. Construction of the Bavaria Towers development is already well underway with completion scheduled for H2 218. Although speculative developments are easing pressure on Munich s tight office market, we expect vacancy rates to drop further in light of ongoing strong demand for office space. Completion Volume (in 1, sq m) and thereof Pre-let/Owner-occupied 4 35 3 25 2 15 1 5 Prime and Average Rents (in /sq m) 32.7 15.3 14.9 16.3 16. 17.3 213 212 218 215 Completions 34.5 33.3 214 158 216 215 164 217 thereof Pre-let/Owner-occupied 218 Vacancy Rate (in %) and Vacancy (in 1, sq m) 1,4 1,2 1, 8 6 4 2 6.1% 213 5.1% 214 3.8% 1,392 1,156 874 688 215 35. 35.6 216 35 1 27 3.% 216 219 2.4% 536 217 217 Prime Rent Average Rent 4
Summary and Outlook Although demand for office space in Munich remains high, space is becoming increasingly hard to come by with supply at critical levels especially in the municipal areas. Often the only chance that large-scale occupiers have to meet their space requirements is to sign leases for space still in the development phase. This, however, typically involves an average planning horizon of at least three years. Speculative developments featuring leasing concepts well suited to their location would be welcomed with open arms. Over the long-term, we see a risk that the lack of space could limit expansion opportunities and discourage companies from moving to the city. We expect above-average take-up in 218, potentially above the 7, sq m mark. However, it remains to be seen to what extent increasingly limited supply will affect take-up levels. Fast Facts INVESTMENT MUNICH 217 216 Transaction Volume in million 6,17 6,86 Portfolio Transactions 17 % 18 % Share by International Buyers 41 % 33 % Share by International Sellers 33 % 2 % Most Important Property Type Office: 49 % Office: 71 % Prime Yield Office 3.2 % 3.3 % Commercial Transaction Volume (in million ) 7, 6, 5, 4, 3, 2, 1, 4,77 213 5,15 214 5,85 215 6,86 216 6,17 217 Investment Transaction Volume The Munich market for commercial real estate generated a transaction volume of around 6.2 bn in 217. Even though this result beat out the long-time average by about 5 %, it fell short of 216 s extraordinary result of 6.8 bn. Nevertheless there is no sign that demand has cooled. The decline can instead be attributed to a shortage in supply. Be that as it may, numerous large deals are currently in the pipeline for 218 and scheduled to be finalized in the spring. Strong market activity can be observed across all asset classes. Munich therefore continues to be among Germany s investment hubs with the highest liquidity. Supply and Demand Although open-ended real estate funds and special funds have proven to be most active in the buy-side in past years, competition intensified in 217. With a share of 21 %, open-ended real estate funds and special funds ranked just ahead of asset/fund managers with 17 %. Property developers and development companies (14 %) and private investors (11 %) followed behind. REITs also exceeded the 5m mark, claiming a 9 % share. This narrow span among the different buyer groups highlights intensified competition and reflects the variety of investors active in the Munich market. Types of Properties (in %) Industrial & Logistics Building Site (commercial) Mixed Use 11 7 4 2 Other 49 Office Roughly 41 %, or 2.5 bn, of capital poured into commercial assets came from foreign investors, who invested directly in the Munich market and via asset/fund managers. Foreign investors participated in just under half of the high-volume transactions of more than 1m. The largest share of foreign capital came from the UK and Europe, while Asian investors accounted for a total share of only 5 %. Retail 13 14 Hotel 5
Half of transaction volume, or 3.1 bn, focused on office assets, which, in light of strong demand and significant rental growth, remain by far the most popular asset class among investors. Investments in hotel and retail assets secured a market share of more than 14 % and 13 %, respectively, with the latter benefiting from a number of large deals. Mixed-use assets and commercial sites brought in just under 65m (11 %) and 45m (7 %), respectively. The distribution of market share per asset class is currently much more balanced than only a few years ago when office assets accounted for between 6 % and 75 %. This can be attributed to the increasing attractiveness of other asset classes and pressure to diversify among asset classes due to the shortage in supply and much lower yields for office properties. Transaction Volume by Buyer Groups (in million, share in %) Open-ended real estate funds / Special funds Asset managers / Fund managers Property developers Private investors / Family Offices Listed property companies Other investors 3 6 9 1,2 1,5 1.8, 21 % 17 % 14 % 11 % 9 % 28 % Yields Yields in all locations and asset classes continued their downward trend over the past 12 months. Prime yields for office buildings in the Munich city center came to 3.2 % at the end of 217. As for peripheral locations, prime yields slipped significantly below the 5 % mark, following the path taken by industrial and logistics assets at the beginning of the year to a current 4.65 %. In view of the fact that interest rates remain low and with pressure to invest still high, we expect yield compression to increase, making itself felt particularly in value add and opportunistic investments. Summary and Outlook We do not see any signs of a reversal in the current favorable trend that has driven Munich s commercial investment market for several years now. Quite to the contrary, we expect very strong results in Q1 218 with several high-volume transactions already in their final stages. The number of forward deals is likely to increase as well as investors are looking to secure properties early on and leasing risk remains low. With business good for Munich s companies and the population expected to grow, secondary and tertiary locations can also expect to attract more attention and 218 is likely to see another above-average year-end result. Transaction Volume by Seller Groups (in million, share in %) Property developers 24 % Asset managers / Fund managers Opportunity funds / Private equity funds Private investors / Family Offices Open-ended real estate funds / Special funds Other investors 17 % 12 % 1 % 7 % 3 % 3 6 9 1,2 1,5 1,8 Tobias Seiler Associate Director Research +49 89 624294-63 tobias.seiler@colliers.com 6
Glossary Take-up of Space Take-up of space is the sum of all spaces either newly let, sold to owner-occupiers, or built for or by an owner-occupier within the period under consideration. The salient date is that on which the lease or purchase agreement is signed. The renewal of an existing lease is not counted in the take-up of space. Leasing performance Leasing performance reflects take-up excluding owner-occupied space. Prime Rent The premium rent represents the median of the top 3 % of new lets (not counting owner-occupiers) during the 12 months just ended. Average Rent The average rent is calculated by taking the individual rents agreed to in all new leases, weighting them by the amount of space rented and computing the mean value. Vacancy Vacancy is defined as all office space available for occupation within three months. Prime yields Prime yields are the best return that can be realized for a property of highest quality and in the best location when leased under usual market conditions (highly solvent tenant). The figures here are gross yields. Photo credits Front page Neue Balan, Allgemeine SÜDBODEN Grundbesitz Verwaltung GmbH, Michael Kammeter Fotografie Photo credits inside pages Page 2 Fotolia Page 3 Thinkstock, Fotograf: Michael Abid Page 7 istock, william87 7
43 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 86 EMEA: 111 2.3 billion global turnover Contact: Tobias Seiler Associate Director Research +49 89 624294-63 tobias.seiler@colliers.com Alexander de Oliveira Kaeding Associate Director Research +49 89 624 294-894 alexander.kaeding@colliers.com Karolina Belza Consultat I Research +49 89 624294-88 karolina.belza@colliers.com Colliers International Deutschland GmbH Dachauer Str. 63 8335 München +49 89 624 294 95 billion in transaction volume with more than 8, investment and leasing deals 17 million sq m under management Over 15, professionals About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 15, professionals operating from 43 offices in 68 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 Twitter: @ColliersIntl and LinkedIn. To see the latest news on Colliers International in Germany follow www.colliers.de. colliers.com Copyright 218 Colliers International Deutschland 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). 218. All rights reserved.