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Dogged movement in Frankfurt's office market

Year-end result of 360,000 m² | Vacancy rate falls again | Top lease price stable

The lease result of 104,000 m² office space for the fourth quarter brought to an end a restrained year in Frankfurt's office market. The full-year result 360,000 m² is 20% below the previous year (451,000 m²) and 22% under the ten-year average (460,000 m²). The figures for the fourth quarter 2014 are 7% below the average lease performance for the last five closing quarters. These figures were compiled by the office leasing team for Frankfurt at international real estate consultancy Cushman & Wakefield (C&W).

The largest lease agreement was concluded by Deutsche Bank in the first quarter. Germany's largest financial institution will gradually move into a space of 32,000 m² in the MainZero project developed by Tishman-Speyer. The lack of availability of high-quality office space was a decisive factor in the market behaviour over the past year. Enquiries for spaces in excess of 10,000 m² in particular often resulted in contractual extensions rather than the conclusion of new agreements. The banking sector was also forced to consolidate its workforce in some cases, which also influenced the demand for office space.

Despite the overall low lease level, the mood among the market players remain positive. A large number of enquires and extensions clearly underscore the general willingness to occupy new spaces. However, the space currently available often does not provide the improvement in quality desired by lessees. “In many submarkets, the amount of very well-equipped space entering the market is still too low. The advance lease rate for the past year was almost 100%,” said Dennis Stern, Head of the Frankfurt Office Leasing department at Cushman & Wakefield. Some companies prefer more flexible solutions with shorter contractual obligations over committing to a project that is still in the planning phase.

Medium size segment remains most important pillar

According to C&W, the medium size segment between 1,000 and 2,999 m² remains the most important market pillar with around 28% of the entire lease volume. The market share of 23% in the small size segment below 500 m² also underscores its solid overall basis. By contrast, large-scale leases were less common in 2014 than in previous years. Whereas eight leases in excess of 10,000 m² were recorded in 2012, only four such agreements were concluded in 2013 and three in 2014. The activity in this segment was concentrated on extensions to existing lease agreements. Key players included Zürich Versicherung and Deutsche Bank with extensions for 30,000 m² each, IBM with 18,000 m² and the advertising agency Ogilvy & Mather with 15,200 m². Alongside the lack of alternative space, this development is also being driven by proactive lessee management on the part of owners.
The market development did not impact on the top lease price, which remained stable at EUR 37 per m²/month.

Property conversion continues apace

The previous trend for property conversion and demolition is continuing in the standard segment. Over the course of the past year, a total of 276,000 m² was removed from the market and the vacancy rate fell from 12.4% to its current rate of 11.4%. As of the end of December, around 1.39 million m² space was available for leasing at short notice in Frankfurt out of a total of 12.24 million m².

By the end of December 2014, 293,000 m² of office space had been completed (2013: 451,000 m²). Of this, 120,000 m² was completed in the fourth quarter, including completion of the ECB buildings. An additional 240,000 m² is currently under construction.