International real estate consultancy firm Cushman & Wakefield (C&W) recorded take-up of 325,800 sq m in the Munich office market in the first three quarters of 2023. The result is thus around 40 percent below the 10-year average and around 43 percent below the 5-year average. Compared to the previous year's equivalent result, the decline in take-up is around 47 percent.
Weak Q3 due to lack of major lettings
Overall, take-up in Munich in the third quarter totalled 87,700 sq m. Both this quarterly figure and the cumulative result for 2023 to date represent a record low, the likes of which have not been seen here since data collection began. This is primarily due to the absence of large-scale lettings and owner-occupier transactions. Larger deals are being postponed increasingly often.
The majority of lettings in the third quarter (123 of 143 recorded transactions) took place in the space segment up to 1,000 sq m, which means that the trend towards small transactions continues as in the two previous quarters. Between July and September there was only one letting in the 3,000 sq m to 5,000 sq m segment with the leasing by Ramboll GmbH in "Fabrik". In second and third place come the leases concluded by Jungheinrich AG in the "Neue Balan" property for 2,500 sq m and a public administration tenant in the "Campus C" property with 2,400 sq m.
Prime office rent plateaus at EUR 44.50/sq m
The sustainable prime office rent remained stable compared to the previous quarter at EUR 44.50/sq m per month. Compared to the same quarter of the previous year, however, this level represents an increase of EUR 1.50/sq m. The prime rent is mainly achieved in the Old Town, City Centre North and City Centre West submarkets. The third quarter again showed that rents of EUR 50.00/sq m per month are possible in some particularly high-quality properties in very good locations.
The area-weighted average rent across new lettings over the past twelve months was EUR 23.35/sq m per month at the end of September 2023, down EUR 0.95/sq m on Q3 2022.
Hubert Keyl, Head of Office Agency Munich and Head of C&W's Munich office, comments: "The downsizing trend is clearly discernible in the Munich lettings market - companies are increasingly making larger parts of their space available for subletting and small-space deals continue to dominate the market. On the one hand, desk-sharing and remote working models are reducing the need for space, and on the other tenants are trying to reduce the rent burden by moving into a smaller area. If no suitable space can be found, tenants currently prefer to stay in their current premises."
Industrial companies are the main take-up drivers
The industrial, transport and traffic sectors achieved the highest take-up in Q3 at 22,400 sq m (28 deals), 68 percent of which was in the surrounding area submarkets. The second highest take-up was recorded by companies from the construction and real estate sector at 12,600 sq m.
Vacancy rate in the market area at a constant medium level
The vacancy rate at the end of Q3 is 5.6 percent, an increase of 50 basis points compared to Q3 2022, with absolute vacancy totalling around 1.2 million sq m at the end of September 2023. This level is the same as in Q2. In contrast, the vacancy rate in subletting space has increased. While 97,500 sq m was registered here in Q3 2022, this figure had grown to 121,200 sq m in Q3 2023. There has also been an increase compared to Q2 2023 (103,200 sq m).
Construction activity remains high, new buildings popular with tenants
A total of 359,100 sq m of office space was completed in the Munich office market in the first three quarters of 2023. Of this, 21 percent or 74,500 sq m was attributable to Q3. At the time of completion, 51 percent of the space was already occupied. Currently, a total of 818,300 sq m of office space is under construction, 45 percent of which is pre-let. With around 1.0 million sq m of office space in planning, Munich continues to have a well-filled development project pipeline.
