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Frankfurt office space market with a weak start into the year

Turnover of 62,000 m² in floorspace during the first quarter  |  Market vitalisation for the coming months is indicated  |  Top rental prices started to climb again for the first time

With a good turnover of 62,000 m² in floorspace (including owner transactions), the Frankfurt market for office space had a comparably weak start into the new year. Although the market for office spaces in the metropolis on the river Main habitually only starts to pick up during the course of the year, this year's prelude result closes considerably below average. On average of the past ten years, 85,000 m² was newly leased in the first quarter of the year. The result in 2013 is below this mark by 27% and 52% below the very strong start into the year 2012. It was the fourth weakest kick-off in the past ten years and in the past five years, only 2010 fell short of this result with a reported 56,200 m².

According to Cushman & Wakefield (C&W), the international consulting -firm for commercial real estate, the modest start into 2013 is due to the absence of lease agreement for larger spaces. While several transactions in excess of 10,000 m² were signed in the previous year as early as in the first quarter, contracts on this scale are entirely missing by early April of this year. "Among others, the Kreditanstalt für Wiederaufbau (KfW) with more than 13,000 m² and Union Asset Management Holding AG with 12,700 m² contributed significantly to the strong start into the year. In this year, the largest contract was concluded with Vodafone for 6,700 m²", says Dennis Stern, Head of Frankfurt Office Agency Department at C&W. "By the end of March four contracts beyond 3,000 m² were signed for a total of 17,800 m². In the same period in 2012, eight contracts for 71,300 m² were closed. These figures emphasise where the market has lost revenue until now in the annual comparison. However, the market action is bound to vitalise substantially in the coming months for large volume transactions as well. There are a few requests for large space in the market and we expect that these can be brought to a close of contract in 2013."

The vacancy rate fell again modestly and it is reported at 13.0% in late March. The market of the Frankfurt region currently has 1.56 million m² available for leasing in the short term. Compared to the previous year period, a decline by 84.000 m² can be reported in offered spaces. The trend of declining vacancy volumes is likely to continue in the coming months: by the end of the year 2013, 182,000 m² office spaces will probably completed, of which merely 24,300 m² are still available.

Existing office space in Frankfurt in the beginning of April 2013 amounts to a rounded 12.02 million m². In the first quarter, construction of 46,700 m² was completed. Overall, 405,000 m² in floorspace for offices are in construction (including the new ECB building with 104,000 m²).

The top rental price in Frankfurt started to climb again for the first time since the end of 2010. It was listed at 36.00 euro per m²/month in late March and is earned in the bank district. "Frankfurt now again has a real prime tower in the TaunusTurm, which is a novelty in the market since the Opera tower. The rent level in the TaunusTurm is equally high; independent thereof the offered space is met by good demand. In the past few months alone, three lease agreements have been concluded", explains Dennis Stern. "The demand for prime spaces however is not only focused on the TaunusTurm. There is general interest for prime spaces, particularly projects such as the ONE Goetheplaza and the MainTor. In the first quarter, a rounded 10% of all spaces were leased above 34.00 euro per m²/month. We assume that we will see additional lease agreements being concluded in the coming months at a very high level. Accordingly we consider a further increase of the top rent in the market to be thoroughly probable."

"Notwithstanding the moderated start into the year and the continued dampened economic forecasts, we expect the leasing activity in the Frankfurt market for office spaces to vitalise considerably in the course of the year 2013", says Inga Schwarz, Head of the Research Department of Cushman & Wakefield. "We maintain our forecast that the lease volume 2013 will be around the level of the ten-year average."