International real estate consultancy firm Cushman & Wakefield reports take-up of 329,500 square metres for the Frankfurt office market in 2020. The COVID-19 pandemic has put the brakes on leasing activity. The slump in take-up in the second quarter of 2020 was not made up for in the rest of the year. The overall result is 40 per cent below the previous year's take-up. The shortfalls on the averages of the previous five and ten years were 42 percent and 35 percent respectively.
With take-up of 122,000 square metres, the fourth quarter was the strongest of 2020. 25 leases in the 1,000 square metres category had a positive impact take-up. The first three quarters of 2020 each saw an average of only 13 new leases of this size.
Pierre Nolte, Head of Office Letting Frankfurt at Cushman & Wakefield, commented: "The largest deal this year also made a significant contributions. Cushman and Wakefield was able to broker the letting of around 18,000 square metres of office space in the Eschborn submarket to Samsung Electronics. The conglomerate leased a high-rise office building and an adjacent low-rise building in the Eschborn Gate development project."
Banking district and Eschborn benefit from pre-lettings in development projects
Overall, the second highest take-up in the Frankfurt market was achieved in the Eschborn submarket. New leases totalled around 53,000 square metres, the highest take-up recorded in the submarket in the last ten years. This was largely made possible by the supply of space in development projects. With 32,200 square metres, the proportion of lettings in development projects is 61 per cent - in the last three years the average was only 14 per cent. The banking district submarket also benefited from development project lettings. The proportion here is 57 per cent. In total, 45,400 square metres of the 80,000 square metres that were let in the banking district comprised spaces that are currently under construction; almost 40,000 square metres of this in the new Frankfurt FOUR development alone.
Pierre Nolte: "Despite the uncertainties caused by the effects of COVID-19, we have seen some major deals in new buildings or high quality space this year. The trend for office occupiers is clearly to improve quality while reducing overall space. Demand for high-quality space is correspondingly high, but this is not only affecting the central locations, but also the peripheral office market locations such as Eschborn or Niederrad."
Achievable prime rent is stable, average rent continues to rise
The sustainably achievable top rent in the Frankfurt market remains unchanged at € 45.00 per square metre per month. The weighted average rent for all new leases concluded in the last twelve months is € 23.60 per square metre per month. Compared to the previous year, it has thus risen by € 2.35. This increase is primarily due to leases signed for the new FOUR project and the Omniturm and Marienturm properties in the banking district, which were completed at the end of 2019.
Vacancy and office stock continue to rise
Vacancy increased by 10 per cent compare to the previous year, to around 889,000 square metres. The vacancy rate in the market area is now 7.6 per cent, a level last seen at the end of 2017.
In total, completions added 226,400 square metres of office space, 40 per cent more than the ten-year average. Completion figures are also expected to be above average in 2021. If there are no construction delays, around 176,000 square metres of office space are to be completed. Of this, 66 per cent has already been pre-let.
Outlook
Pierre Nolte expects take-up in 2021 to be higher than in the past reporting year, but not to reach the level of 2019 (553,000 square metres) nor the ten-year average (490,000 square metres): "Even though we saw a significantly higher propensity to conclude leases in the second half of 2020 than at the beginning of the year, the pandemic-related economic effects and uncertainties will still have a dampening effect on take-up next year."
The vacancy rate is likely to rise further next year, as many of the existing spaces that become vacant, not least due to lettings in new development projects, will not be immediately re-lettable. The prime rent will nevertheless maintain its current level, as demand for attractive new space in good city centre locations remains high. As availability here is gradually being reduced, the proportion of high-priced deals will be lower in 2021 than in 2020. The weighted average rent should therefore decrease somewhat.
