In Q1 2022, international real estate consultancy firm Cushman & Wakefield (C&W) noted take-up of 200,200 sq m in Munich’s office market. This is the strongest start to the year since 2018, with take-up rising by 91 percent compared to the weak Q1 last year. The current quarterly result is thus 4 percent above the Q1 five-year average (193,500 sq m) and 12 percent higher than the Q1 ten-year average (179,200 sq m).
Large deals exclusively in development projects
Take-up was mainly driven by leases concluded in development projects and owner-occupier construction starts. All leases of 6,000 sq m or more were concluded in development projects. The reasons for this are the still limited availability of large areas in existing stock and tenant demand for high quality space.
A total of 13 leases were concluded in development projects amounting to 71,300 sq m, thus contributing 36 percent of Munich’s total office take-up. The largest lease by far was for 19,700 sqm, concluded by Bosch Sicherheitssysteme in the AER development project in Neuperlach.
Six owner-occupier deals with a total of 28,200 sq m (16 percent) also contributed to the strong quarterly result. Of this, a total of 91 percent of the owner-occupier take-up was in Munich’s surrounding region. Around 79,900 sq m of office space take-up took place here in the first three months of 2022. This is 49,000 sq m more than in the same quarter last year and at the same time the largest ever increase in take-up in Munich’s surrounding region submarkets. whose contribution to total take-up was thus 40 percent. In contrast, only 38 percent (Q1/2021: 48 percent) of take-up took place in the city centre, at 70,000 sq m. The city submarkets’ (excluding the city centre), contribution remained stable at 25 percent (Q1/2021: 29 percent) or 50,300 sq m.
No movement in prime rents
The achievable prime rent remained unchanged compared to the previous quarter at EUR 42.00/sq m per month, but this represents an increase of 6.3 percent compared to 12 months earlier. C&W expects that the achievable prime rent will continue to rise in the current year, as competition for the few available spaces in and around the Altstadtring has intensified significantly.
The area-weighted average rent has increased by EUR 2.30 or 11 percent to EUR 23.15/sq m per month over the past twelve months.
Hubert Keyl, Head of Office Agency Munich at C&W, comments: "Despite the high level of take-up Munich’s surrounding region, companies are also continuing to be attracted towards the city centre and the urban area. Accordingly, the area-weighted average rent will also rise this year. In terms of prime rents, we expect a significant jump in prices over the course of the year due to the low availability in the city centre, rising construction costs and rising interest rates."
IT and industrial sectors with the highest take-up
Companies from the technology, media and telecommunications (TMT) sector generated the greatest take-up. C&W noted 50 deals here with a combined take-up of 61,400 sq m. This corresponds to 31 percent of the total. The industrial sector followed in second place, contributing 25 percent of take-up.
Vacancy rate rises to 4.9 percent
Absolute vacancy has risen from 786,400 sq m a year ago to 1,024,500 sq m (+30 percent). The vacancy rate in the market area is now 4.9 percent (Q1/2022: 3.7 percent), the highest level since early 2016. The vacancy rate in the surrounding region has risen at an above-average rate: from 6.1 percent in Q1/2021 to 9.2 percent. Despite the high take-up in these submarkets it has hardly had any effect in terms of reducing vacancy, as 37 percent of the take-up here took place in development projects.
Construction activity remains at a high level
Completions in new construction and core refurbishment projects totalled only 9,100 sq m in Q1 2022. The completion of a further 462,800 sq m is expected by the end of the year, of which 221,800 sq m is currently still without tenants. Overall, development projects totalling just under 1.6 million sq m are currently under construction. Around 36 percent of this is already let or allocated to owner-occupiers.
