In the 1st half of 2023, office space take-up comprising lettings and properties assigned for owner-occupation in the Frankfurt real estate market amounted to 180,700 sq m, reports international real estate consultancy firm Cushman & Wakefield (C&W). Of this, 88,500 sq m took place in the 2nd quarter. The result fell short of both the H1 5-year and 10-year averages by almost 8 percent.
Take-up was concentrated in the city centre
In the course of the year so far, no deals over 10,000 sq m have taken place. The largest letting of the current year remains the lease concluded by Universal Investment for approximately 9,600 sq m in the Timber Pioneer development project in the 1st quarter. The largest deals of the 2nd quarter were the letting of around 8,800 sq m in Otto-Fleck-Schneise 7 to Eintracht Frankfurt AG, followed by the letting of some 5,100 sq m in "The Spin" development project to American Express and almost 4,900 sq m in let to State Street in ONE.
American Express and State Street have hereby reduced their office space, leaving their current locations in favour of a more central location in Frankfurt's Europaviertel. With a total of 55,500 sq m (31 percent of take-up), the majority of take-up in H1 2023 took place in city centre locations. In total, almost 51 percent (92,200 sq m) of the lettings in the first half were of space in development projects or properties providing first-class quality with modern, high-grade fit-outs.
Zijad Gibic, Partner Office Agency Frankfurt at Cushman & Wakefield, stated: "The current half-year take-up result was at a stable low level. Recent lettings such as those to State Street and American Express confirm the flight-to-quality trend. Due to the persistently challenging market environment, which is characterised by high inflation, interest rate increases and space reductions, full-year take-up us expected to be at a similar level to last year's result."
Vacancy over 1 million square metres
At the end of June, around 1.05 million sq m of office space was available for short-term occupancy. The vacancy rate thus amounts to 8.9 percent and has risen by 0.2 percentage points compared to the previous quarter and by 0.8 percentage points compared to the same point last year. The proportion of sublet space has also increased within the last three months. At the end of the 1st quarter, 73,800 sq m was offered for subletting, and by the end of the 2nd quarter this figure increased to 105,400 sq m.
In particular, peripheral submarkets such as Offenbach-Kaiserlei, City-West, Niederrad and Airport exhibit vacancy rates that have risen by up to 2.9 percentage points compared to the 1st quarter. On the other hand, declining vacancy rates are apparent in the Station, Banking District and Europaviertel districts, underlining the flight-to-quality trend. Vacancy rate is expected to rise further over the second half of the year.
Low occupancy rates on completion
In Q2, components B and C of the FLOW at Frankfurt Airport, providing around 19,000 sq m of office space, were completed. This brought Frankfurt’s H1 completion volume to 42,800 sq m, of which 77 percent (33,100 sq m) is unlet. For 2023 as a whole, a completion volume of around180,000 sq m is expected, with a current pre-letting rate of 50 percent. In 2024, office completions are expected to total around 215,000 sq m. 58 percent of this space is already pre-let.
Tenants pay prime rents for first-class space
The weighted average rent across all new lettings in the last 12 months was EUR 25.10/sq m per month. Compared to the 1st quarter of 2023, this corresponds to a decrease of EUR 0.60/sq m or 2.3 percent. Compared to a year ago, the weighted average rent has risen by EUR 1.30/sq m (3.5 percent). The prime rent at the end of Q2 was EUR 48.00/sq m per month, exhibiting an increase of EUR 0.50/sq m or 1.1 percent compared to the previous quarter. Over the last 12 months, the prime rent has also risen by EUR 0.50/sq m. Considering the willingness to lease top quality office space seen in the 2nd quarter, C&W expects further increases in average and prime rents.
