2022 ended with weak take-up in the Frankfurt office market, reports international real estate consultancy firm Cushman & Wakefield (C&W). Lettings and owner-occupier deals totalling some 374,000 sq m were registered in 2022. Compared to the previous year's result, this is a decline of about 14 percent. The main reason for this was the lack of major lettings.
No major deals at the end of the year
Office take-up in the fourth quarter totalled some 82,400 sq m making the final quarter the second-weakest of the year, not least because not a single deal was signed for over 5,000 sq m. The number of lettings below 1,000 sq m peaked at more than 100 in the 4th quarter, contributing 50 percent of the quarter’s take-up.
The largest letting in the 4th quarter was of almost 4,500 sq m to Mayer Brown in the Global Tower building. The next-largest transaction was by Ardian Germany with around 4,000 sq m in Opernturm, followed by Ziraat Bank's owner occupation in Friedrich-Ebert-Anlage 54 with around 3,600 sq m.
Over the course of the year, there were only three deals of 10,000 sq m and above, which together contributed 15 percent to the overall result for the year. In 2021, seven lettings were taking place in this size category contributing 25 percent to the total. The number of lettings in the 1,000 sq m to 5,000 sq m range increased by 5 percent year-on-year.
Mario Herbst, Partner Office Leasing Frankfurt at Cushman & Wakefield, explains:
"Despite some postponed large-volume lettings due to be concluded in 2023, take-up in the coming year will remain below 400,000 sq m. Tenant demand for higher-priced, central locations is encountering an increasing shortage of space in Frankfurt's CBD. In the surrounding submarkets we see the opposite trend: falling demand and sharply rising vacancy."
Vacancy rate remains high year-on-year
The vacancy rate at the end of 2022 was 8.1 percent. A total of 954,500 sq m of office space was to let for immediate occupancy, including 34,000 sq m (3 percent) in new buildings constructed in 2022. This represents an increase of 90 basis points in the vacancy rate compared to the previous quarter and is on a par with the previous year's figure. Peripheral submarkets in particular, such as Offenbach-Kaiserlei, Airport and Eschborn, stand out with vacancy rates of between 10 and 25 percent, whereas submarkets close to the centre, such as Banking District, City Centre and Westend, have vacancy rates of between 10 and 25 percent whereas central submarkets such as Banking District, City and Westend exhibit vacancy rates of less than 5 percent.
Declining completion volumes in 2022
In the course of 2022, 120,200 sq m of office space was completed in the Frankfurt market area, 32,000 sq m of this was in the 4th quarter. Completed properties include the 16,700 sq m FLOW (components A-B) in the Airport submarket and the first construction phase of Oststern in the Ostend submarket, with 9,400 sq m of office space. A slightly larger expected completion volume of around 163,700 sq m is expected for 2023. Of this, 34 percent has already been pre-let. In 2024, the completion of approximately 249,000 sq m is planned. Here the pre-letting rate is just under 57 percent.
Significant increase in average rent
The weighted average rent for all new lettings in the last 12 months is currently EUR 24.80/sq m per month. Within the past three months this corresponds to an increase of EUR 1.50/sq m or 6.4 percent. Compared to the previous year, the weighted average rent has risen by EUR 1.60/sq m (6.9 percent).
At the end of the year, the prime rent was EUR 47.50/sq m per month, having remained stable compared to the previous quarter and EUR 1.00/sq m above the level of a year previously. For 2023, Cushman & Wakefield expects a further moderate increase in prime rents. Reasons for this include high inflation and the resulting persistently high construction costs