MARKET REPORT /2018 Accelerating success. Office and Investment Market Frankfurt
Market Overview Office Leasing TOP 7 BERLIN DÜSSELDORF FRANKFURT HAMBURG COLOGNE MUNICH STUTTGART STOCK OF OFFICE SPACE 90.52 19.50 7.60 11.57 13.75 7.85 22.40 7.85 in million sq m OFFICE SPACE TAKE-UP 4,156,700 937,000 333,000 710,100 622,000 302,000 984,200 268,400 in sq m Change year-on-year in % 6 9-9 29 14-20 26-38 OFFICE SPACE TAKE-UP 3,167,900 634,300 331,800 462,700 505,130 261,000 718,400 254,600 (for the entire year) 10-year Ø PRIME RENT 31.30 27.00 41.00 26.00 21.50 35.60 24.30 in /sq m AVERAGE RENT in /sq m 19.15 15.40 20.00 15.40 12.90 17.30 13.40 VACANT OFFICE SPACE in sq m 3,652,800 390,000 532,400 1,104,900 625,000 314,000 535,900 164,600 VACANCY RATE in % 4.1 2.0 7.0 9.6 4.5 4.0 2.4 2.1 Change year-on-year in basis points -80-100 -50-160 -50-100 -60-70 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 2,740 6,912 3,410 2,000 6,170 1,200 in million Change versus prior year in % 9 4 54 26 13-31 14-10 -37 TRANSACTION VOLUME (for the entire year) 10-year Ø PRIME YIELD OFFICES in % PRIME YIELD HIGHSTREET RETAIL in % PRIME YIELD INDUSTRIAL & LOGISTICS in % 33,667 18,490 4,090 1,538 3,790 2,912 1,110 4,100 950 3.20 3.75 3.30 3.30 4.25 3.20 3.80 3.20 3.50 2.80 3.20 3.50 2.80 3.10 4.65* *) Refers to the defined logistics market areas 2
City Facts FRANKFURT Population in 1,000 736 Employees Paying Social Se cu rity Contributions 563 in 1,000 Unemployment Rate in % 5.6 Per Capita Disposable Income in 25,550 Fast Facts OFFICE LEASING FRANKFURT Change vs. prior year Office Space Take-up 710,100 sq m 28.6 % Leasing Take-up 667,500 sq m 21.7 % Prime Rent 41.00/sq m 9.3 % Average Rent 20.00/sq m 7.0 % Vacancy Rate 9.6 % -160 bp* Office Space Stock 11.57 m sq m -0.4 % Achieved Rents FRANKFURT Price range in / sq m Average rent in /sq m 1 Banking District 24.00-42.00 29.50 2 Westend 18.00-36.00 24.00 3 City 12.00-36.00 21.20 4 Central Station / Westhafen 10.00-25.00 16.50 5 Bockenheim 10.00-17.00 14.50 6 Europaviertel / Fair District 17.50-22.00 18.00 7 City West 10.00-20.00 15.00 8 Frankfurt South 10.00-19.00 14.30 9 Airport 15.00-26.00 18.00 10 Frankfurt West 9.00-13.00 11.40 11 Frankfurt North 8.50-13.50 10.00 12 Mertonviertel 9.50-13.00 11.50 13 Eastend West 9.50-18.50 14.10 14 Eastend East 8.00-13.00 9.40 15 Niederrad 9.50-15.50 12.50 16 Eschborn 9.00-15.00 10.50 17 Kaiserlei 9.50-12.50 11.00 *) basis points Office Leasing Take-up The Frankfurt office leasing market, including Eschborn and Offenbach-Kaiserlei, achieved an outstanding result in with take-up at roughly 710,100 sq m. s results managed to exceed the strong previous year s results by almost 30 % and to beat the 10-year average by more than 50 %. These results reflect ongoing high demand for office space in Frankfurt. The last time we saw similar take-up levels was in 2000. This record result can mainly be attributed to large-scale leases signed for more than 10,000 sq m. The largest-scale single lease of the year was signed in Q4 by Deutsche Bundesbank for around 44,400 sq m of office space at the Frankfurter Büro Center. Similar to the previous year, Deutsche Bahn was particularly active, signing two leases for just over 30,000 sq m and 23,000 sq m at new-build developments in Europaviertel. The state-owned company was responsible for almost 84,000 sq m in take-up in, spread across a total of 9 deals. 66 8 40a Zeilsheim 455 Bad Soden am Taunus Hattersheim am Main Sulzbach (Taunus) 43 Kelsterbach Steinbach (Taunus) Schwalbach am Taunus 16 Oberursel (Taunus) Eschborn Hausen 44 Kalbach Ginnheim 43 Bonames Eschersheim Nieder-Eschbach Nordend Rödelheim 5 2 3 Sossenheim 7 Westend 13 Ostend Bockenheim Innenstadt 10 6 Frankfurt 1 Höchst am Main Gallus 4 Griesheim Sachsenhausen 5 8 Schwanheim 15 40 Niederrad 9 12 11 3 Neu-Isenburg Dreieich 46 3 Bad Vilbel Seckbach 40 Riederwald 17 66 14 459 43 521 66 Fechenheim Offenbach am Main 448 3 Heusenstamm 67 3
The CBD remains particularly popular among tenants. The Banking District, Westend and City submarkets posted around 298,000 sq m in take-up combined, or 42 %. Other submarkets, such as Europaviertel and Kaiserlei, benefited from high-volume single-asset deals. After getting off to a slow start in, the banking sector became the most active tenant group in Frankfurt as expected, claiming more than 20 % of total take-up, even though we have yet to see an increase in the number of new leases signed by international banks in the wake of Brexit. Consulting firms secured second place among the most active sectors with more than 115,000 sq m in take-up. Construction and real estate proved the third-strongest sector in. The real estate sector was able to more than double its take-up yoy. This outstanding result can largely be attributed to leases signed by coworking space providers and business centers. The leases signed by WeWork in the Banking District had a particularly strong impact on the market. Rents Office Space Take-up in 1,000 sq m 800 700 600 500 400 300 200 100 0 17 2013 8 2014 42 433 360 348 548 Leasing 2015 Owner-occupiers 4 2016 43 667 Completion Volume (in 1,000 sq m) and thereof Pre-let/Owner-occupied 200 160 196 Prime rents recorded a 9 % yoy increase to 41.00 per sq m thanks to new leases signed for space at prime properties and at a number of property developments. As a result, rent levels exceeded the 40.00 per sq m mark for the first time since 2001. The average rents followed suit, up roughly 7 % yoy to 20.00 per sq m. Supply and Vacancy 120 130 110 80 82 40 0 2015 2016 Completions thereof Pre-let/Owner-occupied 128 91 54 2018 2019 The drop in vacancy continued to plummet in, down 160 bp yoy to 9.6 %. Roughly 1.1 million sq m of space was available for lease at year-end, just under 184,000 sq m less than at the end of 2016. Central locations recorded particularly significant drops in vacancy. The vacancy rate recorded at year-end in the Banking District came to a mere 7.8 %. This reflects a reduction of available space in this submarket by nearly 50 % compared to 2016. Vacancy Rate (in %) and Vacancy (in 1,000 sq m) 2,000 1,600 1,200 800 13.8% 12.5% 11.8% 11.2% 9.6% 400 0 1,607 1,455 1,358 1,289 2013 2014 2015 2016 1,105 Prime and Average Rents (in /sq m) 38.00 38.00 38.50 37.50 41.00 18.50 19.50 19.00 18.70 20.00 2013 2014 2015 2016 Prime Rent Average Rent 4
Key Developments Completion rates are far from being able to compensate for shrinking supply with the 82,200 sq m of office space completed in already completely taken-up by tenants or owner-occupiers. As things currently stand, completion volumes in 2018 are expected to increase to 127,600 sq m, but the majority of this additional space (72 %) already has been leased as well. Significant amounts of space will be added to the market until 2019 with the OMNITURM and Marieninsel property developments. However, tenants are already showing considerable interest in these products. Summary and Outlook The office leasing market benefited from high demand across all sectors in, posting a result that was well above average. We expect this trend to continue in 2018 with limited construction activity turning tenant focus to stock buildings, causing the drop in vacancy rates to continue. If interest in central locations remains strong in 2018, we can also expect average rents to continue to rise. Fast Facts INVESTMENT FRANKFURT 2016 Transaction Volume in million 6,912 6,143 Portfolio Transactions 12 % 24 % Share by International Buyers 43 % 44 % Share by International Sellers 20 % 17 % Most important Property Type Office: 88 % Office: 90 % Prime Yield Office 3.30 % 4.20 % Commercial Transaction Volume (in million ) 7,000 6,000 5,000 4,000 5,011 5,687 6,143 6,912 Investment Transaction Volume Investors poured roughly 6.9 bn into the Frankfurt commercial property market, including Eschborn and Offenbach-Kaiserlei, in. That puts commercial transaction volume up 13 % from an already strong previous year result. This growth trend has been ongoing now for 8 years. Mega-deals remained the key driving force behind market activity in, accounting for more than 100 m. 16 deals of this magnitude were signed in the past 12 months, bringing in almost half of total transaction volume. This solid result can be attributed to several high-rise deals including Japan Center and the T8 and T11 towers in Taunusanlage. The acquisition of Tower 185 by Deka Immobilien deserved particular mention: Going for roughly 775 m, this deal was by far the largest single transaction of the year. Supply and Demand 3,000 2,000 1,000 0 3,422 2013 2014 2015 Types of Properties (in %) 2016 Office properties continued to be the most coveted asset class on the Frankfurt market in. The office segment accounted for around 88 % of total transaction volume, or just over 6 bn. Hotel and retail assets only managed to generate single-digit transaction volumes. The sale of Upper Zeil office-retail mix building to Signa while still under construction within the scope of a portfolio deal was the only transaction among the top 10 deals that cannot be attributed to the office segment. Building Site (commercial) Retail Hotel 4 2 2 4 Other 88 Office 5
Open-ended real estate funds and special funds were the most active investor groups with transaction volume at just over 1.8 bn and a market share of more than 26 %. Their high ranking can largely be attributed to the acquisition of Tower 185 by several Deka funds. Asset/fund managers took second place with a transaction volume of roughly 1.4 bn, often acted on behalf of foreign investors as in previous years. REITs trailed behind to claim third place with a transaction volume of around 790 m. The breakdown is similar sell-side with real estate funds and asset/fund managers occupying the two top spots. Property developers played a significant role in the past 12 months as well, taking advantage of the current market situation and disposing of assets valued at just shy of 960 m. That put them in third place sell-side. In terms of location, market activity tended to revolve around Banking District as in previous years with this submarket claiming almost 25 % of transaction volume. The growing significance of submarkets outside the CBD was again apparent in. Only two of the five largest deals signed were actually located in the Banking District. Peripheral locations such as Niederrad and Eschborn, benefited from the shortage of assets in top locations and managed to clearly exceed previous year s results. Yields Yield compression continued as the result of the ongoing euphoria on the investment market. (Gross) prime yields for office properties in the CBD fell 50 bp down from the previous quarter to a current 3.30 %. Frankfurt s submarkets posted prime yields of 4.2 % at the end of year. Logistics assets also saw strong yield compression, again bringing prime yields down to 4.65 %. Transaction Volume by Buyer Groups (in million, share in %) Open-ended real estate funds / Special funds Asset managers / Fund managers Listed property companies Property developers Pension funds Other investors Asset managers / Fund managers Property developers Pension funds Listed property companies Other investors 0 400 800 1,200 1,600 2,000 26 % 20 % 11 % 7 % 5 % 31 % Transaction Volume by Seller Groups (in million, share in %) 0 400 800 1,200 1,600 Open-ended real estate 23 % funds / Special funds 19 % 14 % 12 % 9 % 23 % Summary and Outlook Favorable general conditions, also on the office leasing market, will continue to drive activity on the Frankfurt investment market. We can therefore expect to see strong momentum on the market in 2018 despite the prevailing shortage of assets and steep price increases. This will in part be supported by several high-volume transactions that are already in the pipeline. Laura Müller Senior Consultant Research +49 69 719192-29 laura.mueller@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 VCI-Gebäude Mainzer Landstraße 55, Thomas Koculak Fotografie Photo credits inside pages Page 2 Fotolia Page 3 TRIANON Mainzer Landstraße 16, Colony NorthStar, Inc. Page 7 istock, william87 7
403 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 86 EMEA: 111 Contact: Laura Müller Senior Consultant Research +49 69 719192-29 laura-mueller@colliers.com Colliers International Deutschland GmbH Thurn-und-Taxis-Platz 6 60313 Frankfurt +49 69 719192-0 2.3 billion global turnover 95 billion in transaction volume with more than 80,000 investment and leasing deals 170 million sq m under management Over 15,000 professionals About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 15,000 professionals operating from 403 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 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 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 2018 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). 2018. All rights reserved.