Frankfurt office market: A safe stopover landing despite turbulence

Frankfurt office market: A safe stopover landing despite turbulence
2 Oct, 2008, Frankfurt

In the third quarter, the Frankfurt office market looked to be virtually unshaken by the turbulence in the global financial markets. In the first nine months of the year, a total of 385,000m² of office space was leased, almost a third of this (120,000m²) in the third quarter – an excellent result in view of the current situation. However, it is still clear that lease activities in the Frankfurt market have fallen by 9.4% in relation to the first three quarters of 2007 (first to third quarter of 2007: 425,000m²).

http://www.cushwake.com/

According to international real estate consultants Cushman & Wakefield (C&W), only three contracts were entered into in the third quarter which surpassed the 5,000m² mark. However, these three contracts amount to 42,500m², or in other words 35% of the quarter’s turnover. Stadtwerke Holding’s lease contract conclusion for Kurt-Schumacher-Straße 10-12 alone covers 25,000m². According to Jörg Ettman, Head of Office Space Leasing at C&W Germany, “The relatively low number of major leasing deals is certainly making us sit up and take notice. However, we are confidently entering the fourth quarter due to the stable revenues in the medium and small office space segment, where we are expecting a positive development in the near future.”

The amount of vacant space has continued to decline in the third quarter. There are currently 1.46 million square metres of space available on the market for short-term leasing. This means that the vacancy rate has fallen slightly to the current rate of 12.6 % (compared to 14.7% in the third quarter of 2007). Ettmann stated, “The vacancy rate is, however, not expected to continue to decline to this extent in 2009 as numerous new-builds are set to be completed over the coming year.” According to C&W, it is also essential to evaluate the situation in peripheral locations and for basic office space. “Most of the demand is for premium-quality spaces in central locations.”

C&W consultants have reported that high-end lease rates have remained stable over the last quarter, with rates of 37.50 EUR/m2/month being agreed in the banking district. The consulting company is, however, predicting a slight increase in high end lease rates over the coming months. “The lease rates currently being negotiated for premium locations such as the Opernturm skyscraper have exceeded the 40 euro mark and contracts are likely to be concluded for these sorts of rates” Jörg Ettmann commented on the current development.

On the whole, the Frankfurt market seemed surprisingly robust at the start of October. The concerns in the financial markets and the less than optimistic economic forecasts have not yet quite penetrated Frankfurt’s office space market. Even banks and financial service providers were surprisingly active in the third quarter; ten lease contracts covering a total office area of 18,200m² (15.2%) can be attributed to this sector.

An overall satisfactory development is forecast for the fourth quarter as many deals are currently in the negotiation stages and are expected to be concluded by the end of the year. The predicted lease volume is in excess of the 500,000m2 mark. However, as is often the case in today’s world, it is not possible to predict where the journey will end.

http://www.cushwake.com/