istockphoto.com Teun van den Dries CONTENTS Market overview and indicators 3 Index development 10 Benchmark comparison Age categories City trends City in focus: Essen 20 Interview with Andreas Hill, EWG Essener Wirtschaftsförderungsgesellschaft mbh 22 Methodology 26 About empirica und CORPUS SIREO 28 Contacts 32 2
Overview REGIONAL CENTRES ARE BECOMING ESTABLISHED AS INVESTMENT MARKETS Dear Readers, the German real estate investment market stepped up a few more gears in 2015. We are looking not only at the overall volume of investments but also at the sectoral and regional distribution of the investments. First things first: A transaction volume of c. 55 billion was generated on the commercial investment market in 2015 representing growth of c. 40 percent compared with 2014. The market was driven principally by the influx of international capital. International investors accounted for approximately half of the overall volume, and were involved mainly in the major transactions. The leading position is occupied by the office sector, which accounted for 40 percent of the overall market, followed by retail properties with 30 percent. The other sectors also saw an increase in the overall volume of investments, and were able to further establish themselves successfully. The top 7 locations account for the majority of the investments, and investors finally discovered the regional centres in 2015: The so-called provincial regions accounted for considerably more than 40 percent of the overall commercial investments, or c. 25 billion. The fundamental data of the rental markets emphasise the attractive nature of property investments. For instance, the ongoing upward trend in asking rents, as demonstrated by the results of the regional office market index which CORPUS SIREO in conjunction with the research institute empirica has now presented in the tenth edition. In this issue, we take a detailed look at the Ruhr metropolis of Essen where the office market communicated a wide range of positive signals in recent years. We hope that you will find this edition to be informative. Franz Krewel and Björn Pfaffner 3
LOW LEVELS OF VACANCY IN MANY REGIONAL CENTRES Rent levels moderate in Essen Interpretation of market parameters based on the example of Essen: With 3,7 million sqm, the Ruhr metropolis has the fourth largest stock of office premises of the regional centres. The take-up of 140,000 sqm of space in 2015 is unlikely to be reached this year. Essen is characterised by mid-range rents with prime rents of 14.00/sqm. The vacancy rate at the end of 2015 was 5.3 percent. There is likely to be a stable development in vacancy levels and rents in the year 2016. Aachen 1,8 Prime rent 14,00 Yield 5,4 Take-up 18 Vacancy 2,4 Bonn 4,0 Prime rent 16,70 Yield 4,9 Take-up 65 Vacancy 3,4 (Focal City, 2 nd edition) Parameters for 2015 City Trend (YoY change) Office stock (GLA, in MM. sqm) Prime rent stable EUR/sqm/month Bremen 3,2 Prime rent 12,50 Yield 5,6 Take-up 54 Vacancy 4,5 (Focal City, 6 th edition) 6 Yield rising Net initial yield (prime properties, in percent) Take-up declining Net absorption (in 1,000 sqm) Vacancy Vacancies (in %) Dortmund 3,3 Prime rent 13,50 Yield 5,3 Take-up 97 Vacancy 5,9 (Focal City, 5 th edition)
TOP 7: PRIME RENTS IN FRANKFURT AND MUNICH ARE CONVERGING Berlin is leading the way in terms of take-up Interpretation of the market parameters based on the example of Berlin: With 848,000 sqm, the office market in Berlin reported the highest take-up rate of the top 7 locations in 2015. However the take-up volume is likely to decline in 2016. The prime rent of 24.00/sqm will remain stable over the course of the year, whereas the net initial yield for prime properties is likely to remain at the current level. Parameters for 2015 City Trend (YoY change) Office stock (GLA, in MM. sqm) Prime rent stable EUR/sqm/month Yield rising Net initial yield (prime properties, in percent) Take-up declining Net absorption (in 1,000 sqm) Vacancy Vacancies (in %) 8
ASKING RENTS IN THE REGIONAL CENTRES ARE STILL RISING Upward trend in prices is more constant in the regional cities than in the Top 7 Onwards and upwards: Following stagnation in the first half of 2015, the asking rents in the 14 regional centres increased by 1.8 percent on average between July and December, reaching an average level of 8.24/sqm by the end of the year. The growth in rents was concentrated on the mid-range and upper-end price segments, but there was also an increase in rents at the lower end of the price spectrum. With growth in the top 7 locations reported at 1.2 percent in the second half of the year, this failed to match that of the regional cities. Rental growth was reported particularly for the lower-end and midrange price segments. The asking rents for office premises in the top 7 cities amounted to an average of 13.25/sqm in the fourth quarter of 2015. compared with 1.8 percent. However, the main aspect was that the volatility of the markets was much lower. The average asking rents in the top 7 declined in the second and third quarters, whereas the trend in the regional cities was pointing upwards throughout the entire year, albeit with varying levels of intensity. Interpretation of regional office market index The regional office market index shows average asking rents for the 14 regional centres since the first quarter of 2008 (index = 100). For comparison purposes, the development in the corresponding rents in the top 7 locations is also shown. On a year-on-year basis, the regional centres also outperformend the top 7: Growth in asking rents amounted to 1.9 percent, 10
Index Performance STRONG INCREASE IN RENTS FOR OLD PROPERTIES Regional office market index according to age categories (/2008 Q4/2015) 130 120 110 100 90 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 after 1995, excluding new buildings 1945-1994 new buildings* before 1945 *Buildings less than 3 years old Source: empirica Preisdatenbank 2016 (IDN Immodaten GmbH, empirica systeme GmbH) 13
RENTS HAVE INCREASED IN MOST REGIONAL CITIES Aachen, Bremen, Bonn have seen strong growth in the second half of the year Whereas the average asking rents in Aachen and Bremen declined considerably in the first half of 2015, and average asking rents in Bonn declined slightly, the figures for all locations experienced strong growth in the second half of the year. With average rents of 9.70/sqm, Bonn is thus again one of the leaders among the most expensive regional locations. Bonn has seen growth in rents particularly in the lower-end segment. In Aachen, which is very much characterised by the university and knowledge-intensive services, the increase in prices is mainly attributable to growth in the upper-end segment; at the end of 2015, the city returned to a mid-range position among the regional office markets, with average rents of 8.62/sqm. Despite above-average growth, Bremen continues to be an affordable office market with rents of 7.70/sqm. Growth also in Dortmund, Nuremberg, Leipzig, Hanover In the second half of 2015, these office markets were characterised by rental growth which was slightly above-average. With average asking rents of between 8.13 and 8.40/sqm, Dortmund, Hanover and Nuremberg have strengthened their position in the mid-field of regional office markets. In Dortmund and Hanover, a greater supply of properties at the upper-end of the segment, due to various factors including a larger number of new build premises, resulted in higher rents. In Nuremberg, rental growth was seen almost exclusively in the lower-end price segment. In relation to the whole of 2015, the asking rents at all locations declined until the middle of the year before they subsequently recovered considerably: Accordingly, rents in Dortmund and Leipzig increased by approximately 3 percent over the twelve-month period; in Hanover, they increased only slightly (1.3 percent), whereas they remained unchanged in Nuremberg. 14
DIFFERENCES AMONGST THE TOP 7 ARE BECOMING GREATER Munich is pulling away from Frankfurt Although growth in rents in Munich has been below average compared with the top 7 since mid-2015, namely one percent, the capital of Bavaria pulled further away from Frankfurt ( 14.89/sqm) at the end of 2015 with an average figure of 16.03/sqm. Mid-range rents in Munich achieved particularly strong growth. On the other hand, asking rents in Frankfurt in the second half of 2015 declined slightly overall (-0.7 percent), mainly in the upper-end price segment. Strongest growth seen in Berlin and Stuttgart In the second half of 2015, the average asking rents in Stuttgart and Berlin achieved the strongest growth among the top 7, with more than 3 percent growth in each case. However, average rents in Berlin ( 12.00/sqm) and also in Stuttgart ( 11.44/sqm) were significantly lower than the figures for Munich and Frankfurt. Whereas in Berlin the growth was reported for the entire range of properties, upper-end rents in Stuttgart achieved above-average growth. Slower growth in Cologne The below-average growth in rents in Cologne (0.8 percent compared with 1.2 percent on average for the top 7) has further increased the range of prices among the top 7 since mid- 2015. Higher asking rents were only seen at the lower-end of the market, and asking rents in the mid-range and upper-end markets remained unchanged. The market in Cologne has also been weak on the basis of a long-term comparison. With only 4.7 percent since the beginning of 2008, Cologne has reported the lowest growth among the top 7. 18
Index Performance MODERATE RENTAL GROWTH IN COLOGNE SINCE 2008 Absolute Rents* (/2008 Q4/2015) 17 / sqm / month % 130 15 120 13 110 11 9 100 7 90 5 Stuttgart Berlin Köln Hamburg Düsseldorf Frankfurt München 80 /2008 Q4/2015 Anstieg /2008 bis Q4/2015 Expected year-on-year rental trend Berlin Düsseldorf Frankfurt Hamburg Cologne Munich Stuttgart Source: empirica Preisdatenbank 2016 (IDN Immodaten GmbH, empirica systeme GmbH) *Arithmetisches Mittel 19
LARGE PROPERTIES IN VARIOUS SUB-MARKETS 1 Lindenallee 6-8 2 Ruhrallee 175 Lettable area 11,800 sqm Main tenant Bitmarck Service GmbH Year built 1977/2011 Lettable area 7,600 sqm Main tenant Jobcenter Essen Year built 1990 Selected investment transactions in the office sector 2015 2016 Period Asset Floor Area Buyer /2016 Europa-Center 26,500 sqm Dream Global /2016 Ferrostahl-Zentrale 35,000 sqm Henley Investment Management Q4/2015 Ehem. Karstadt-Hauptverwaltung 46,000 sqm publity AG Q4/2015 ParkView Business 4,250 sqm Institutional Investment Partners Q4/2015 Bismarckstraße 36 9,160 sqm TLG Immobilien AG /2015 Thyssen-Hochhaus 16,500 sqm Fakt AG Q2/2015 Ehem. Aareal-Bank-Gebäude 3,600 sqm Plass Immobilien GmbH Deviation from average rent (=0) Build-up area below -25-10 bis -5 10 bis 15 above 50 Green area -25 bis -15-5 bis 5 15 bis 25 Other areas -15 bis -10 5 bis 10 25 bis 50 24
Focal CIty ESSEN OFFICE INDEX Asking Rent Levels (/2014 Q4/2015) Altendorf Westviertel Stadtkern Ostviertel Frillendorf Südostviertel Frohnhausen Südviertel Huttrop Holsterhausen Bergerhausen Margarethenhöhe Rüttenscheid Rellinghausen Stadtwald Schuir Bredeney Heisingen Source: empirica-systeme GmbH, Infas Geodaten GmbH 2016 25