International real estate consultancy firm Cushman & Wakefield recorded take-up of around 156,000 sq m in the Munich office market in the 4th quarter bringing the total for 2022 to around 767,000 sq m. This corresponds to the pre-pandemic level and represents an increase of 13 percent compared to 2021.
Weak 4th quarter, but strong full year
After the three consecutive quarters with take-up of more than 200,000 sq m each, the 4th quarter was much weaker at around 156,000 sq m. The reason was that some larger deals were postponed until 2023.
Nevertheless, the Munich office market recorded a strong year overall. The major contributors to take-up in Q4 were the leases concluded by the Bavarian Red Cross for around 14,000 sq m and by an IT company for around 12,000 sq m. 15 deals took place in the context of pre-letting in development projects, with the focus on spaces of 1,000 sq m and more.
IT and industrial sectors with the highest take-up
Companies from the IT sector were once again the most active in terms of demand. The letting of around 189,000 sq m of office space was achieved via 139 deals in this sector over the course of the year. This corresponds to around 25 percent of the total take-up in the Munich office market. This is followed by industrial companies which contributed around 20 percent of the total.
It is striking that IT companies are particularly attracted to the City Centre West submarket. Around 40 percent of lettings in this sector took place here.
Hubert Keyl, Head of Office Agency Munich und head of the Munich branch of C&W, comments: "The economic changes of recent months have led to noticeable uncertainty among companies, particularly with regard to the size of space to be leased. Tenants are increasingly seeking flexible space that can accommodate a wide range of working practices. Therefore, the decisions on new leases were much slower than usual, but ultimately very targeted."
Rents for office space continue to rise
The achievable prime office rent continued to rise in Q4 2022 and currently stands at EUR 43.50/sq m per month, a new all-time high. Compared to the previous year, this represents an increase of EUR 1.50/sq m or around 4 percent. The achievable prime rent is mainly achieved in the submarkets of Altstadt, City Centre West and City Centre South.
The area-weighted average rent for new lettings in the past twelve months also reached a new peak. It now stands at EUR 23.95/sq m per month, an increase of EUR 0.35/sq m compared to the same point last year.
Due to the high rents within the Munich city area, C&W continued to record a visible shift in demand for space to the surrounding area. Around 26 percent of take-up was registered there.
Vacancy rate static
Vacancy at the end of the 4th quarter totalled around 1.1 million sq m, an increase of around 16 percent compared to a year ago. The vacancy rate in the market area is currently 5.2 percent and thus, after a drop in the third quarter, is back at the level of the end of June 2022.
Construction activity remains high, new buildings still in demand among tenants
A total of around 250,000 sq m of office space was completed in the Munich office market area in 2022. This figure is around 3 percent higher than the previous year (around 241,000 sq m). At the time of the respective completions, 30 percent of the space was still available. Currently, a total of around 967,000 sq m of office space is under construction. This figure is about 30 percent below the previous year's level, but matches the high level of the 5-year average. The pre-letting rate for these development projects is currently at an above-average 59 percent. On the one hand, this suggests a shortage of space and, on the other hand, it underlines the fact that new properties with highly modern and flexible space as well as ESG-compliant orientation are very much in demand. In addition to the projects already under construction, Munich has a well-filled planning pipeline comprising around 1.6 million sq m of office space.