Banks’ influence as tenants on the office letting market is stronger in Frankfurt am Main than anywhere else in Germany. This is one of the findings of the report "Banks at a Turning Point" on the importance of the banking sector as office tenants in Frankfurt, which international real estate consultancy firm Cushman & Wakefield (C&W) has just published. At the same time, the sector is characterised by significant restructuring. This is due to new models of work, which impact both current and future demand for office space.
Financial sector dominates office space take-up
The financial sector has been dominant in the Main metropolis over the past ten years, accounting for 23 percent of office space take-up. Among the German top-5 markets this is a phenomenon unique to Frankfurt. In Berlin, Düsseldorf and Munich, the TMT sector (technology, media and telecommunications) is the largest contributor to take-up, whereas in Hamburg, the industry, transport and traffic sector rules the roost.
Banks’ proportion of Frankfurt’s office space is declining
Although banks are still the most important source of demand in Frankfurt’s office letting market, the space they occupy is declining, according to another result of the C&W survey. While banks occupied around 1.5 million sq m of office space, or 13 percent of the total office stock in the Frankfurt market area in 2021, this was around 24 percent less than in 2001 (2.0 million sq m). In the next few years further space is likely to be given up: C&W expects that by 2026 banks will reduce their office space in Frankfurt a further 21 percent relative to 2021.
The reasons for this include new workplace models and remote working regulations initially introduced during the Covid-19 pandemic. Working from home and hybrid working plays a role here, albeit in varying forms. The banks’ working models now range from complete compulsory attendance to 100 percent remote working. For most banks, however, the range is between 40 and 60 percent compulsory attendance, and this will be reflected in lease renewals and new leases.
City West and Banking District particularly sought after by banks
Two Frankfurt submarkets occupy a prominent position with regard to banks’ office space leasing. For example, the office take-up of financial institutions in the Banking District over the past ten years was 211,000 sq m. This corresponds to 35 percent of the sector’s total take-up in Frankfurt.
With office take-up of around 101,000 sq m over the past decade, City West is also highly sought-after. In this submarket, 28 percent of take-up was generated by financial institutions over the same period. This was due to major lettings to Commerzbank, Deutsche Bank, ING and Landwirtschaftliche Rentenbank.
Banking industry particularly crisis-sensitive
Financial institutions react very sensitively to economic boom and crisis phases, as C&W's research shows. During the dotcom hype at the beginning of the millennium, banks often rented space in excess of their requirements. This development peaked in 2001 with a 37 percent share of office take-up. After the dotcom bubble burst, banking business declined significantly and, with it, the need for new office space: in 2003 financial institutions’ contribution to Frankfurt’s office space take-up was only 8 percent.
A similarly low level of bank leasing activity was recorded in the subsequent economic crises. For example, during the financial crisis in 2008, their proportion of take-up was only 9 percent and in the early days of the euro crisis in 2011 it was 8 percent. In 2015, there were many lease renewals and few new leases. Banks contribution fell to 4 percent that year, a level it fell below only during the Covid pandemic, at 3.5 percent.
Banks especially strong in large lettings
When it comes to leases, banks in Frankfurt require large spaces much more frequently than other sectors. In the past ten years there have been a total of 16 leases for space over 10,000 sq m, totalling around 330,000 sq m. In this size category, financial institutions thus accounted for 30 percent of take-up in the Frankfurt market area. The largest lease signed was by DekaBank for over 46,000 sq m in Niederrad in 2019.
It is noticeable that most of the large deals date from before the Covid pandemic. In 2020, demand declined due to the crisis and has been recovering since 2021. However, large lettings of over 10,000 sq m of office space to banks have been rare since 2020. The largest deal by a bank in the past two years was by ODDO BHF for 18,600 sq m.
High-quality space in demand, at above-average rents
The banks’ high quality and location requirements for the space to be leased remain unchanged. Especially for headquarters, financial institutions prefer new buildings and development projects of the highest quality in the best location. The banks’ average rents are correspondingly high. In 2021, the price for space rented by banks was EUR 33.80/sq m per month. In contrast, the average rent for the Frankfurt market as a whole was EUR 23.20/sq m per month.
Excursus: Only minor Brexit effect for Frankfurt's banking sector
The UK's exit from the European Union had only minor effects on Frankfurt's office letting take-up by the financial sector. There were no major job relocations and thus no significant increase in demand for space from financial institutions. Admittedly, some international banks such as J.P. Morgan and Goldman Sachs increased their space and some institutions relocated. Overall, however, the effects fell well short of expectations. For example, the relocation of the Japanese bank Sumitomo Mitsui Banking Corporation (SMBC) to the Main Tower with an area of around 1,800 sq m from 2017 is already the largest.
