Büromarktüberblick. Market Overview. Big 7 3rd quarter

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1 Büromarktüberblick Office Market Overview Big 7 3rd quarter Deutschland Gesamtjahr Erschieneninim Published October April

2 Will the office lettings market achieve a new record volume? The unusually long and stable economic upswing was also maintained throughout the third quarter. The latest economic forecasts by leading research institutes predict growth of 1.9% for 2017, while the outlook for 2018 has been revised upward from 1.8% to 2.0%. As well as the traditionally strong export market, the domestic economy is also making a significant contribution to this economic boom. The recent decline in the ifo Business Climate Index also failed to cast a shadow over the positive economic data. Despite the slight decline in September, the index still remains way above its long-term average both in terms of company expectations as well as assessments of the current situation. It is difficult to judge whether this somewhat more cautious assessment by companies reflects fears of an overheated economy. The fact remains, however, that Germany not only benefits strongly from global trade and low interest rates but is also able to maintain its competitive strength and still enjoys a good reputation as a location for companies. In the recent global competitiveness report published by the World Economic Forum, Germany was again ranked as the fifth most competitive economy in the world for Germany scores particularly highly in the areas of innovation, technological readiness, infrastructure, competition law, quality of education and company spending on R&D. We have observed that besides the pure consideration of costs, such topics are also of increasing importance for companies. This applies at global level as well as at regional and local levels in Germany itself. Faced with a growing shortage of skilled workers, companies are forced to create innovative and technology-based solutions, ultimately to ensure they remain competitive. Strong user demand with continuing expansion The high employment rate in Germany together with an ever-expanding service sector remains the basis for strong user demand with ongoing expansion. New user types in a dynamic start-up environment are positioning themselves in the market, and their expectations for office spaces with regard to price, usage and flexibility are increasingly penetrating other industries. This is one of the main reasons for the emergence of co-working as a significant trend in German office property strongholds. Many highly expansive national and international co-working providers are now entering the market, and offer alternative places of work for companies where there is a declining supply of new and high-quality office space. Such models are of course not suitable for all and are not possible for every user. The German office market therefore faces the challenge of Completions and vacancy rate Big 7 Vacancy -769,000 sqm compared to last year Office Market Overview 3 rd quarter

3 providing and developing office concepts that are very specifically designed for the user. It seems that numerous existing buildings do not entirely fulfil these requirements since office users that want to move are increasingly turning to project developments. Best nine-month result Frankfurt with highest take-up growth In the first nine months of 2017, the take-up volume in the Big 7 (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart) increased slightly by 2% to 2.94 million sqm and was broadly in line with the previous year. It is also the best nine-month result ever recorded in the takeup statistics for office properties. It is still uncertain whether or not the fourth quarter will achieve the exceptionally high volume recorded in the corresponding period of the previous year. The performance in the final quarter will also determine whether 2017 will again reach last year s record result (3.98 million sqm). A closer analysis of each city reveals certain differences and distinctive features. While Cologne and Stuttgart each recorded a 17% decline in take-up although this was largely influenced by the shortage of available space take-up in Frankfurt increased strongly by 21% to more than 415,000 sqm. Even with virtually no deals related to Brexit, the booming economy is increasingly making itself felt on the Frankfurt lettings market. A few major deals not related to Brexit are still pending this year, so we expect to see a very active fourth quarter in the banking metropolis. In terms of the absolute volume, however, one city continues to set the benchmark for all things related to take-up. For the third time in succession, Berlin was ahead of Munich in the nine-month period with take-up of almost 707,000 sqm compared to 603,000 sqm for the Bavarian capital. Hamburg was in third position with an increase of 6%, ahead of Frankfurt, Düsseldorf, Cologne and Stuttgart. The positive momentum in the category for large contract signings for more than 10,000 sqm increased further still. While 16 deals in this category took place in the first half of the year with a total volume of almost 375,000 sqm, a Prime rental index and take-up Prime Rent Q % compared to last year * Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart (Big 7) Office Market Overview 3rd quarter

4 further 13 deals with a total volume of 232,000 sqm were signed in the third quarter alone. Hence this category again slightly increased its share of the annual take-up volume to above 21%. Vacancy rate breaks through the 5% barrier All quiet on the supply front. Too little construction, too few high-quality vacancies. This segment can also be summed up by this simple formula at the end of the third quarter. The office pipeline is expanding again, and the proportion of speculative developments is also increasing, but centrally located office projects face strong competition from residential properties that are favoured by cities and municipalities. Office vacancies fell further in all Big 7 markets in the period from July to end-september and now stand at 4.56 million sqm. This represents a vacancy rate of only 4.9%. The supply of rental options that are available at short notice for companies has decreased by around 770,000 sqm within the last 12 months. This lack of office space is most evident in Stuttgart, where vacancies fell by a further 27% in 12 months and the vacancy rate has dropped below 3%. Since the supply of new space has also declined further (only 33,000 sqm of new or fully renovated space came onto the market in the first nine months), companies wanting to move often have no alternative but to remain in their existing space. This also explains the decrease in Stuttgart take-up activity since contract renewals such as these are not included in the overall take-up figures. Positive take-up development in Frankfurt also brought about a significant reduction in vacancies. The property stronghold in the German state of Hesse still has the highest vacancy rate among the Big 7 at 8.2%, but the volume has fallen by around 200,000 sqm or 18% within a year. 40% fewer completions in the Big 7 Just over 500,000 sqm of office space were completed in all seven strongholds between January and end-september, which is almost 40% below the completions level in the corresponding period of Apart from Düsseldorf, where the new-building volume has doubled in the past 12 months, and Hamburg, where the situation is stable, the completions volume is lower in all other five cities. The pipeline for the final quarter of the year currently stands at almost 452,000 sqm, of which 24% is still available for prospective tenants. The rest of the space has either been let or assigned to owner-occupiers. The total completions volume for 2017 would therefore amount to around 960,000 sqm, which is also still around 200,000 sqm below the previous year s level. In view of this, the situation regarding the supply bottleneck of good, modern and wellequipped office space will not change at least in the current year, with little or no availability in all cities. The situation could look very different next year: as things stand, considerably more space is in project developer pipelines for Almost 1.3 million sqm of new building space could be developed. However, more than half of this new space has already been let or is being built for owner-occupiers. Rents continue to rise Office rents continue to rise by a moderate rate. This also no longer applies only to the prime locations. There are some cases where rental price rises in other sub-markets Office Market Overview 3 rd quarter

5 within the metropolitan areas (eg Mediaspree in Berlin) have exceeded increases in more central locations. This is also an indication that new and high-quality office concepts no longer focus only on the city centres. As well as the quality of office installations, public transport links and a good infrastructure in terms of local services and eating options are still important if a sustainable rent is to be achieved. Compared to the second quarter of 2017, the prime rents in Berlin, Frankfurt and Munich again picked up slightly in the period from July to the end of September. In Frankfurt and Munich, the rents increased by 0.50 in each case while Berlin registered a rise of as much as The rates were unchanged in the other four strongholds. Over a 12-month period, prime rents increased by 9% in Berlin, by almost 5% in Stuttgart and by 4% in each of Hamburg and Munich. There was no change in the prime rents in Cologne and Düsseldorf compared to the previous year. The JLL prime rental price index for the Big 7 reached points in the first nine months, which is the highest level since the first quarter of This figure also represents an increase of 2.3% in the first three quarters of We expect to see a further increase in rents by the end of the year. The drop in vacancies will continue to put pressure on prices. As a result, rents across all strongholds will increase by a further 4.1% year-on-year by the end of the year. We also expect to see a similar rise in average rents in the full year. Should the economy not experience a severe setback, further increases in rental prices could be expected beyond the end of How much these rises will be depends to some extent on inflation, provided that contracts include appropriate indexation provisions. Office Space Take-up incl. Owner Occupier (sqm) 2016 Q Q Trend prognosis 8 Berlin 1 913, , ,900 è Düsseldorf 2 380, , ,200 Frankfurt/M 3 525, , ,200 Hamburg 4 550, , ,500 Cologne 5 435, , ,300 è Munich Region 6 780, , ,300 Stuttgart 7 400, , ,900 è Total 3,983,900 2,886,500 2,943,300 Office Market Overview 3 rd quarter

6 Vacancy incl. Space for subletting Q Q Q Trend prognosis 8 sqm Rate (%) sqm Rate (%) sqm Rate (%) Berlin 1 865, , , è Düsseldorf 2 739, , , è Frankfurt/M 3 1,072, ,159, , è Hamburg 4 837, , , è Cologne 5 360, , , è Munich Region 6 897, , , è Stuttgart 7 314, , , è Prime Office Rents ( /sqm/month) 1A-Location Q Q Q Trend prognosis 8 Berlin Düsseldorf Frankfurt/M Hamburg Cologne Munich Region Stuttgart Completions (in sqm) 2016 Q Q Trend prognosis 8 Berlin 1 232, ,800 95,600 è Düsseldorf 2 56,200 30,800 61,500 Frankfurt/M 3 147, ,800 42,800 è Hamburg 4 234, , ,700 è Cologne 5 88,900 69,900 46,400 è Munich Region 6 225, ,400 60,700 è Stuttgart 7 122, ,800 32,900 è Office Space Stock (in Mill. sqm) Q Q Q Berlin Düsseldorf Frankfurt/M Hamburg Cologne Munich Region Stuttgart City Area; 2 City Area incl. Ratingen, Neuss, Erkrath and Hilden; 3 City Area incl. Eschborn and Kaiserlei; 4 City Area; 5 City Area; 6 City Area incl. surrounding areas; 7 City Area incl. Leinfelden-Echterdingen; compared to prior year. Office Market Overview 3 rd quarter

7 Contacts Stephan Leimbach Head of Office Leasing Germany Frankfurt tel +49 (0) Helge Scheunemann Head of Research Germany Hamburg tel +49 (0) jll.de Information regarding JLL and our services jll.de/research All research reports on current market figures and special topics jll.de/buero Online offers of office properties for lease can be found on our property listing website Copyright JONES LANG LASALLE SE, No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.