From January to September 2020, international real estate consulting firm Cushman & Wakefield has recorded total floor space take-up of 222,700 sqm in the Dusseldorf office letting market. Compared to the same period last year, this represents a decline of almost 42 percent. Only in 2009 was the result lower. The main reason for this was the lack of large lettings in the third quarter, in which a total of 55,700 sqm of office space was let.
"In the third quarter, office space take-up remained subdued. Fortunately, however, we are seeing a noticeable increase in demand in the form of active requests for space, so that the number of leases signed has also increased compared to the previous quarter," commented Luisa Rotthaus, Branch Manager and Head of Office Agency in Dusseldorf at Cushman & Wakefield, and continuing: "Major companies in particular are continuing to exercise caution and are reviewing their future space requirements, taking into account the further development of the pandemic as well as alternatives such as remote working.” No economic lockdown measures comparable to those imposed in the spring are expected and consequently signs of growing momentum in take-up are definitely evident. "For the year 2020 as a whole, we expect office take-up of at least 280,000 sqm for the Dusseldorf urban area, plus the Ratingen and Neuss submarkets." Continued Mrs Rotthaus.
Number of leases concluded has increased
Although very few large-volume lettings took place in the third quarter of 2020, take-up was satisfactory due to the increased number of leases signed. This is due in particular to numerous lettings in the small to medium-sized segment. The number of leases concluded increased by around 58 percent in the third quarter than in the previous quarter. The increase in letting activity indicates that despite corporate uncertainty due to the Covid-19 pandemic are still present, but have also eased somewhat. The largest letting of the year therefore remains the letting to the Oberfinanzdirektion of 33,500 sqm in the first quarter.
Prime office rents constant at a high level
At the end of the third quarter, the attainable prime office rent is € 28.50 per sqm per month, achieved in the Central Business District (CBD) submarket and is thus unchanged from the previous quarter.
The weighted 12-month average rent is currently € 16.30 per sqm per month. Compared to the previous year’s equivalent figure of € 16.35 per sqm per month, it is thus showing no significant change.
Lively construction activity with high pre-letting rates
A total of around 77,400 sqm of office space has been completed so far this year. The volume is thus significantly higher than the average of 55,600 sqm for the last five years. A higher completion volume for the equivalent period was last reported in 2014. A further 59,600 sqm of office space is still under construction with completion planned by the end of the year, 93 percent of which has already been let. It is expected that 187,300 sqm will be completed in 2021. Here too, a high pre-letting rate is already apparent, with just under 33 percent of the space still available.
Office vacancy rate fell slightly in the third quarter of 2020, having risen between April and June. It currently stands at just under 6.8 percent, with some 616,500 sqm of office space available for immediate occupancy.
Investment market exceeds previous year's result
In contrast to office take-up, office investment Dusseldorf has continued to produce strong figures. With a total commercial transaction volume of around EUR 2.4 billion, last year's equivalent result was exceeded by almost 20 percent. Office properties are by far the strongest asset class and account for almost 80 percent of the total volume.
While the first half of the year was characterized by large transactions, individual property transactions below the € 100-million threshold predominated in the third quarter. At a total of around € 590 million, the transaction volume was quite positive. The sale of Hines' "Medicus Portfolio" to Union Investment, which includes a total of three core office properties and a Ruby brand hotel development project in Dusseldorf, made a major contribution towards this result. Also worthy of mention is the sale of the "Quatron" on Mercedesstrasse for over € 100 million. The building was sold as part of a nationwide portfolio by AEW.
"All in all, we are seeing a significant renewed pick-up in momentum, as paused purchase and salse processes have been resumed and capital placement pressure from investors remains high. Especially in times of economic uncertainty such as these, low-risk core and trophy office investments are at the very top of investors' shopping lists," commented Angelo Augenbroe, Head of Capital Markets in Dusseldorf at Cushman & Wakefield. "In addition, the situation in the financial and capital markets is still favourable and no price discounts are expected due to the high liquidity in the investment market, so the pressure on prime yields remains high. Taking these aspects into account and with a view to the Dusseldorf investment pipeline, a total commercial transaction volume of at least EUR 3.2 billion is expected by the end of the year," he continued. The prime yield for high-quality core office properties in very good central locations was 3.00 percent at the end of the third quarter. Compared to the same point last year, this represents a decline of 25 basis points. In non-central locations, the prime yield is currently around 4.00 percent.
