MARKET REPORT Munich 21/217 Office Leasing and Investment Accelerating success.
Office Leasing Munich statistics Population 1,543, Area 217 km2 Employees Paying Social Security Contributions 822, Unemployment Rate 4.2 % Trade Tax Multiplier 49 % Per Capita Disposable Income 29, Sources: Statistisches Landesamt Baden-Württemberg, Bundes agentur für Arbeit, Nexiga GmbH Fast Facts OFFICE LEASING Office Space Take-up 78,3 sqm Leasing Take-up 73,3 sqm Prime Rent 35./sqm Average rent 1./sqm Vacancy rate 3. % Office Space Stock (incl. periphery) Take-up of Space The Munich office market posted its strongest result since 211 with take up at 78,3 sqm, reflecting a yoy increase of 3%. Owner-occupiers accounted for 5, sqm in total, putting net leasing performance at 73,3 sqm, up around 12% compared to 215, which registered a higher owner-occupier share. Sixteen tenants and three owner-occupiers took up space in the segment of over 5, sqm. As a result, this space segment led the ranks with 19,9 sqm, or 25% of total take-up. The space segment of between 2,1 and 5, sqm came in second with 158,5 sqm, or a 2% market share. Small-scale leases signed for less than 5 sqm accounted for 154,3 sqm with 139,8 sqm going to Unterschleißheim 9 Bergkirchen Dachau 22.72m sqm Oberschleißheim 11 388 Business Campus Garching 13 Garching 92 12 Ismaning Karlsfeld Schwabing-Freimann Take-up of Space in 1, sqm 7 34 Gröbenzell Allach-Untermenzing 8 Moosach 41 95 19 2 53 73 Laim Germering 9 Planegg Martinsried Krailling Maxvorstadt Arnulfpark Westend 5 Gräfelfing 9 Bogenhausen 2 1 Hirschgarten 2 5 4 Pasing-Obermenzing 99 99 2R Neuhausen-Nymphenburg 5 Unterföhring Milbertshofen-Am Hart 8 14 3 München Moosfeld 4 Obersendling 11 Unterhaching 995 Ottobrunn Hohenbrunn 13 99 212 Leases 213 214 215 Owner-occupiers 21 Taufkirchen Baierbrunn Market Report Office Leasing and Investment 21/217 Munich Colliers International Haar Putzbrunn Neubiberg Pullach im Isartal 2 8 Neuperlach Gauting 95 Messe Riem 34 Obergiesing 8 Neuried 94 Au-Haidhausen Werksviertel Sendling Feldkirchen Aschheim Arabellapark 1 2 Parkstadt Schwabing 1, 11 Oberhaching 13 Höhenkirchen
the segment of between 51 and 1, sqm and 13,8 sqm to the segment of between 1,1 and 2, sqm. Supply and Vacancy The vacancy rate on the market as a whole dropped by.8 percentage points over the course of the year to a current 3%. 88,2 sqm is currently vacant, a decrease of 185,4 sqm compared to the previous year. Within city limits the market can currently be characterized as landlord-friendly with vacancy rates at a low 2.1%. Tenants looking for large-scale space are encountering extremely limited supply. Although the situation in some surrounding areas is somewhat more relaxed, these areas are also experiencing an ongoing drop in vacancy with a 5.9% vacancy rate recorded outside city limits at year s end. Completion volumes remain unable to compensate for the rate at which space is being absorbed. Only 158,3 sqm of new office space was added to the market in 21, significantly below the long-term average. As expected, available space is meeting with enthusiastic demand due to the current supply bottleneck. Newbuild space is coming to market almost fully let with occupancy rates of over 9%. Only slightly more office space is scheduled for completion in 217 (173,7 sqm) than in 21. And tenants will have to hurry if they want to secure a lease as 8% of this space has either been preleased or taken up by owner-occupiers. Demand The areas surrounding Munich saw more leasing activity in 21 than they have in quite some time, posting a 25% share in total take-up. This development can primarily be attributed to several large-scale leases. The lease signed by BMW for space at Business Campus Unterschleißheim was the largest signed in 21. The car manufacturer has taken up 32,2 sqm of office space for its autonomous driving development center along with just under 15, sqm of light-industrial space. BMW also signed a lease for around 11,4 sqm in the microcity office park in Unterschleißheim for its fleet management subsidiary Alphabet. We can expect to see tenants looking for large-scale space turning to the surrounding areas due to the increasing scarcity of supply within city limits mentioned above. Demand will be particularly focused on locations with good accessibility. In terms of industry mix, the manufacturing industry took the lead with 141, sqm in take up, or 18%. The IT sector followed a close second (17%) with consulting firms right at their heels (1%). The public sector was very active in snapping up large-scale space, signing four leases for more than 5, sqm each. The east of Munich in particular is expecting to see a number of new-build completions. HighriseOne in Werksviertel is scheduled for completion in 217 and the neighboring ATLAS high-rise is currently under renovation. Quick progress is also being made in the construction of what is currently the largest development on the Munich market, Bavaria Towers featuring around, sqm of office space. Other projects include NEO Munich, which is being built within the scope of the Baumkirchen Mitte district development, and Leuchtenbergring Office located directly along the city s Mittle rer Ring central ring road. Market Overview Location Office Space take up (incl. owner-occupiers) in sqm Lease Take-up (excl. owner-occupiers) in sqm Sustainable Rents in /sqm/month Average rent in /sqm/month Vacancy in sqm Completed Projects 21 in sqm 1 Centre 84,4 84,4 17. - 4. 29.1 52, 8,8 2 Centre North-West 4,9 4,9 12.5-27. 21. 33,2,8 3 Centre North-East 23,1 23,1 14. - 33.5 22. 18,4 2,2 4 Centre South-East 5,9 5,3 11.5-22.5 1.2 2,2 11, 5 Centre South-West 9, 5,2 11. - 22. 15.2 13,3 1,3 City North-West 52, 52, 1. - 19. 15.7 27,9 34,1 7 City North-East 7, 8, 9. - 24.5 15.8 73, 4, 8 City South-East 53,7 5,3 8.5-1.5 13.8 5,7 24,4 9 City South-West 88,9 82,4 8.5-18.5 12.1,9 City 579, 547,2 8.5-4. 17.7 371,3 128, 1 Periphery South-West 33,4 25,3 9.5-17. 13.1 14,3 11 Periphery North-West 8,1 5, 8. - 12.5 11.2 3,1 7,5 12 Periphery North-East 7,4 71,9 7. - 15. 1. 25,1 21,5 13 Periphery South-East 23,5 2,3 7. - 13.5 1.2 7,4 7 Periphery 21,3 18,3 7. - 15. 11.1 31,9 29,7 Total 78,3 73,3 7. - 4. 1. 88,2 158,3 Market Report Office Leasing and Investment 21/217 Munich Colliers International 3
Take-up of Space by Size (in 1, sqm and %) and Number of Lease Contracts incl. Owner-occupiers 4 3 2 1 53 22 93 54 19 2 % up to 5 up to 1, up to 2, up to 5, from 5, Take-up 18 % 17 % 2 % 25 % 154 14 131 159 197 Number of Lease Contracts Rents In contrast to the general situation on the market, average rent experienced a slight 2% drop to 1. per sqm. Upon closer look, however, this development appears to be the result of a shift in demand to the more affordable surrounding areas. Average rent within city limits experienced a 2% increase to 17.7 sqm and average rent in the surrounding area was up 3% to 11.1 per sqm. Although rent hikes slowed somewhat over the course of the year, there is no sign of a shift coming any time soon. Many owners are currently able to land higher asking rents while offering fewer incentives. The high demand for premium space was reflected in prime rents. A number of leases were signed for space in the prime segment, triggering a 5% increase in prime rent to a current 35. per sqm despite the fact that very few new-build or revitalization projects were completed in Munich Old Town. IMMAX Property Index Take-up by Industries Top Five (in 1, sqm) and share of Total Take-up (in %) 141 129 122 81 54 18 % 17 % 1 % 1 % 7 % 5 1 15 Manufacturing Industry Consulting Firms Information and Telecommunication Public Administration, Organisations, Social Instituitions Building and Real Estate The IMMAX property index indicates the supply and demand trend on the office market. It reflects the relationship between supply at a specific point in time and take-up of office space over the previous 12 months. Supply figures include current vacancies (space available within 3 months) and potential space that will become available within 12 months thanks to new developments and newly vacant stock space. Lease take-up from the previous 12 months is included in take-up calculation. The calculation does not include office space taken up by owner-occupiers. IMMAX 1/217 = 911,5 sqm = 1.25 73,3 sqm As a measure of competition in terms of available space, the IMMAX is exceptionally low. Roughly 1 sqm of space is currently leased for every 1.25 sqm of space available. In view of the fact that supply continues to tighten while demand remains high, it is not unreasonable to expect the index to drop further in coming quarters. Prime and Average Rents (in /sqm) 3. 32.7 34.5 33.3 35. 14. 15.3 14.9 1.3 1. 212 Prime Rent 213 214 215 Average Rent 21 4 Market Report Office Leasing and Investment 21/217 Munich Colliers International
Summary and Outlook The Munich office market recorded an increase in take-up for the third consecutive year, indicating that we are currently experiencing a cyclical upswing. In a German economy characterized by ongoing stability we can expect demand for office space to remain lively in 217. Take-up is likely to again exceed the long-term average of just over 7, sqm. There is no sign of change in the current pipeline bottleneck and it is already clear that very little new-build space will be added to the market this year. Faced as they are with limited supply, tenants with long-term planning horizons looking for large-scale space may increasingly turn to leasing space in projects still under development, bridging the time until they are able to move into their new space by renewing their current lease. Preleasing activity may trigger the start of new projects over the course of the year as a result. Speculative developments featuring leasing concepts well-suited to their location will continue to have excellent chances of finding interested tenants. As most of the large development sites in Munich are already occupied, new projects will most likely be scattered. In addition to developments exclusively dedicated to new-builds, we are likely to see developer focus shift to revitalization and conversion of properties previously used for other commercial purposes, with additional floors being added as well. Vacancy (in 1, sqm) and Vacancy Rates (in %) 1,4 1,2 1. 8 4 2.1 %.1 % 212 213 5.1 % 214 215 3. % 1,371 1,392 1,15 874 88 IMMAX Property Index 1/217 7/21 1.3 1.4 3.8 % 21 1/21 7/215 1/215 7/214 1/214 7/213 1/213 7/212 1.5 2. 2.3 2.7 3.3 2.7 2.5 2.2.5 1. 1.5 2. 2.5 3. 3.5 Completion Volume (in 1, sqm) and thereof Pre-Let/Owner-occupied 25 2 15 223 194 212 158 174 1 5 183 12 19 213 214 215 152 138 21 217 New Office Space thereof Pre-Let/Owner-occupied Market Report Office Leasing and Investment 21/217 Munich Colliers International 5
Investment Transaction Volume Tobias Seiler Associate Director Research Phone +49 89 24 294-3 tobias.seiler@colliers.com Thanks to a strong Q4 with a transaction volume of 3.4bn, the Munich commercial real estate market saw a yoy increase of 15% to.8bn. Along with portfolio transactions, high-volume deals such as the sale of the BayWa Tower and Highlight Towers office high-rise buildings were the main force behind market activity. Well over 7m of the office portfolio worth 3.bn that Officefirst sold to Blackstone can be attributed to assets on the Munich market. In addition to the high-rise deals, the largest transactions of the year included the sale of the NOVE by Citterio office newbuild still under construction at Arnulfpark and the resale of one of Germany s largest Karstadt department stores located between Munich central station and Stachus. High-volume transactions starting at 1m accounted for just over 3.bn in 21 with deals of between 5m to 1m generating another 1.3bn. Alexander de Oliveira Kaeding Associate Director Research Phone +49 89 24 294-894 alexander.kaeding@colliers.com 8 7 5 4 3 2 1 Fast Facts Investment Transaction Volume Largest Buyer Group: Open-ended funds/special funds Largest Seller Group: Developers/Constructors Most requested Type of Property: Office 3.7 4.8 5.2 5.9.9 212 213 214 215,8sqm 25. % 25. % 71. % Prime Yield Office 3.3 % Commercial Transaction Volume (in billion ) 21 Portfolio deals claimed roughly 19% of total transaction volume at around 1.3 bn, a considerable increase compared to the previous year in which portfolio deals represented a share of 11%. With these high activity levels, Munich once again positioned itself as one of Europe s largest, most coveted investment destinations and claimed first place in a city-center comparison conducted in 21. Buyer and Seller Groups As in previous years, German and foreign open-ended real estate funds and special funds comprised the largest investor group, pouring a total of 1.7bn into German real estate. They were followed by opportunistic investors at just shy of 1.bn. Project developers and development companies came in a close third, snapping up real estate and lots valued at a total of 974m. Insurance companies and pension funds remained quite active, expanding their purchases beyond their core segment focus of two years ago to include assets with upside potential in order to secure target yields. These two investor groups accounted for a total of 1.2bn in investment volume. Although foreign investors often only managed to clench second place in the first half of the year with the market being dominated by German investors, they were involved in significant transactions during the second half of the year and particularly in Q4. Roughly one-third of total investment volume came from foreign sources in 21 with previous year results, however, somewhat higher at 44%. In addition to the Officefirst portfolio purchased by Blackstone, examples include the purchase of Altezza in the Westend district, the Wappenhalle business center at Messestadt Riem and representative Montgelas Park in Bogenhausen. In view of interest rate trends, the fact that investors are still taking a waitand-see approach to their investments in the UK and the lack of alternative investment options, foreign capital will continue to constitute a key pillar of the Munich real estate market in 217. In addition to seeing foreign investors participate in a number of Market Report Office Leasing and Investment 21/217 Munich Colliers International
indirect investments in 217, we can also expect new market players to start making their mark through direct investments in the Munich market. Investment Assets Transaction Volume by Top-Buyers Group (Millions of ), Share (in %) 2, The strong results on the office leasing market sharpened investor focus on office assets. Roughly 4.9bn, or 72% of total investment volume, was poured into office buildings in 217. High demand combined with clearly favorable fundamentals makes office assets outside central locations an attractive investment alternative. The other asset classes have fallen considerably behind in the ranks. Retail assets, posting only a few, although high-volume, transactions, mixed-use buildings and industrial and logistics assets only accounted for roughly % of total transaction volume. In addition to traditional usage types, the Munich market also saw a special use property change hands with the sale of the special-purpose airfield located in Oberpfaffenhofen to the west of Munich. The property is located on a 27-hectare lot and encompasses more than 4 buildings. 1,5 1, 5 25 13 1 1 4 Open-ended Real Estate Funds/Special Funds Developers/Constructors Insurance Companie Private Investors/ Family Offices Corporates/Occupiers Yields for real estate have dropped across all usage types. Prices for core office buildings experienced another increase, resulting in a yoy drop in yields of.45 percentage points to a current 3.3%. Yields for mixed-use buildings in prime locations have even fallen to below 3%. In view of intensified pressure to invest and the strong advantage of real estate investments over investment alternatives such as 1-year sovereign bonds, which currently produce yields of around.25%, we can expect this yield compression to continue throughout the year. An interest rate hike in the eurozone does not appear to be in sight anytime soon, unlike developments in the US. The FED s recent decision to raise rates, however, should not affect investor behavior on the German commercial real estate market, particularly as no one can predict the impact of the change of power in the US on fiscal policy. Summary and Outlook Current general conditions will continue to lend wings to the Munich investment market in 217 and keep yields under strong compression. We expect to see an increased number of forward deals and the supply bottleneck to in part be compensated by shorter real estate holding periods. The past few months have also shown that the real estate markets in the areas surrounding Munich have become increasingly attractive. Assuming that the planned new-build projects get off the ground, the 217 market should have access to a supply high-volume new-build properties, even if they will be few in number. Transaction Volume by Top-Sellers Group (Millions of ), Share (in %) 2. 1.5 1. 5 Industrial Mixed-use Properties 25 Developers/Constructors Open-ended Real Estate Funds/Special Funds Asset/Fund Manager Hotel 18 5 Others 1 Types of Properties (in %) 9 3 Private Investors/ Family Offices Corporates/ Owner-occupiers Retail 71 Offices Market Report Office Leasing and Investment 21/217 Munich Colliers International 7
554 Offices in countries on continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112 2.3 billion in annual revenue Authors: Tobias Seiler Associate Director Research +49 89 24 294-3 tobias.seiler@colliers.com Alexander de Oliveira Kaeding Associate Director Research +49 89 24 294-894 alexander.kaeding@colliers.com Colliers International München GmbH Dachauer Str. 3 8335 München +49 89 24 294 13 billion in transaction volume with more than 8, investment and leasing-deals 18 Million square meters under management 1, Professionals worldwide About Colliers International Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry leading global real estate services company with more than 1, skilled professionals operating in countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 1 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 11 consecutive years, more than any other real estate services firm. For the latest news from Colliers, visit Colliers.com or follow us on Twitter: @Colliers and LinkedIn. colliers.de Credit Cover Microsoft Deutschland-Zentrale; GSP Architekten; ARGENTA Unternehmensgruppe Copyright 217 Colliers International München GmbH This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s). 217. All rights reserved.