International real estate consultancy firm Cushman & Wakefield (C&W) recorded take-up of around 238,000 sq m for the Munich office market in the 1st half of 2023, of which some 127,000 sq m took place in the 2nd quarter. The H1 result is thus 41 percent below the result of a year earlier and 36 percent below the 10-year average.
Focus on small-scale leases continues in Q2
In Q2, take-up increased slightly to 126,000 sq m compared to Q1 (111,500 sq m). Nevertheless, overall take-up in H1 2023 was 41 percent lower than a year earlier. This is mainly due to the lack of large-scale lettings and owner-occupier transactions. The majority of the letting activity in the first six months of 2023 (236 of 307 recorded deals or 77 percent) took place in the less than 1,000 sq m size category.
To the end of June, there had only been three lettings above the 5,000 sq m mark and five in the 3,000 sq m to below 5,000 sq m size category. The most significant lettings in Q2 were the leasing of 6,400 sq m by City of Munich in the property Gustav-Heinemann-Ring 12 (Ramersdorf-Perlach), the leasing of 4,200 sq m in Hybrid.M by Mouser Electronics Inc. and the leasing of 3,300 sq m in the property Barer Strasse 24 (Moosach) by the Federal Office for Migration and Refugees.
Prime office rent climbs to next record high
In the 2nd quarter, the sustainably achievable prime office rent in Munich once again reached a record high of EUR 44.50/sq m per month. Compared to a year earlier, this represents an increase of EUR 2.00/sq m, and compared to the previous quarter an increase of EUR 0.50/sq m. The achievable prime rent is achieved primarily in the Old Town, Centre North and Centre West submarkets. In particularly high-quality properties in very good locations, prices beyond EUR 50/sq m are occasionally achievable.
The area-weighted average rent across new leases over the past twelve months also reached a new all-time high. It now stands at EUR 24.70/sq m per month, an increase of EUR 1.00/sq m compared to Q2 2022.
Hubert Keyl, Head of Office Agency Munich and Branch Manager C&W Munich commented: "It's all about the quality of the office space, the building and the location. The office market in Munich is increasingly dominated by small-scale deals.
Due to the run on high-quality properties, prime rents are being driven up further, while the marketing of older buildings has become a significantly more drawn-out process."
Education and administration sector is the main revenue driver
In H1 the largest contribution to take-up, some 52,300 sq m, was achieved via 27 deals by the aggregate sector comprising education and social affairs, public administration and lobbyists. This was followed by the TMT sector with take-up of 47,600 sq m.
Vacancy rate increased in the market area
At the end of June 2023, vacancy totalled around 1.2 million sq m, of which 103,200 sq m was subletting space The vacancy rate was thus 5.6 percent, an increase of 0.4 percentage points compared to 12 months previously. Companies are increasingly recognising that their originally leased office space is not required in its entirety and are releasing some areas for subletting. A further increase in the vacancy rate is expected in the future.
Very high completion volume in Q2
In H1, 410,600 sq m of office space was completed in Munich (H1 2022: 87,500 sq m). Of this, 70 percent or 287,800 sq m was attributable to Q2. At the time of completion, 64 percent of the space was already occupied, which underlines the high demand for new-build quality. A total of 785,000 sq m of office space is currently under construction, 42% of which is pre-let. In addition, around 1.1 million sq m of office space is currently at the planning stage.
