CBRE – Office market Frankfurt Q2 2020

Frankfurt office leasing market braked by lockdown; investment market with strong half-year result

Trends at a glance

  • Office take-up of 103,600 sq m in the first half of 2020
  • Focus was on space in the small-scale segment and with first-class facilities – no major transactions in the second quarter
  • In the second quarter, demand was particularly strong in submarkets outside the CBD – among other things due to the lower rent level
  • Consultants were the strongest user group, followed by real estate companies and the IT sector
  • Rental price level remains high, average rent reaches new record level
  • Vacancy rate marginally higher than in the previous quarter due to older space becoming vacant and conversion of office space (-30 bps y/y)
  • Investment volume of around €3.4bn (incl. multifamily > 50 Units) 14% higher than previous year’s level; Investments in office properties increased by 15% to €2.37bn
  • Office prime yield stable at 2.90% since the beginning of the year (-10 bps y/y)

Outlook

It was possible to overcome the rigidity of the economic shock, partly thanks to the extensive government support measures. Following the massive collapse in the first half of the year, several leading indicators indicate a more rapid recovery of the German economy in an international comparison. Compared with previous crises, the Frankfurt office market will prove to be robust due to the comparatively low vacancy rate and a completion pipeline that is well-filled but characterized by high pre-letting rates.

As a result of some larger space requests on the market, a more dynamic leasing activity can be expected in the further course of the year. Particularly recently completed new construction areas and project developments still under construction in the CBD continue to meet with brisk demand. By the end of the year, just under 253,000 m² are in the project pipeline, two thirds of which have already been absorbed by the market. A further 160,100 m² of new office space is expected for 2021, but 84 % of this space has already been pre-let or is already owner-occupied. Accordingly, we initially expect a stable development of the prime rent in the further course of the year, while a moderate rent increase can be expected next year.

The introduction of the 100 percent home office and the associated challenges that companies and especially their employees have had to face in recent months will not be a long-term solution – on the contrary, more differentiated and flexible workplace solutions will play a decisive role in future rental and expansion decisions more than ever before. Corona-related distance regulations could lead to a short-term increase in the space required per employee.

Due to the continued strong investor interest and the abundant liquidity available in the market, the investment dynamics at Frankfurt’s real estate market should increase further in the second half of the year and lead to a good total annual result. To minimize risk, investors will continue to focus on products in the core segment.

The full report can be found at: CBRE Frankfurt Office market Q2 2020

 

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