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Munich's office market falters in third quarter

Turnover volume of around 402,000 m² to end of September - Vacancy rate continues to fall - Upward pressure eases on top lease price

Munich's office space market continues to fall short of expectations with a turnover volume of around 105,000 m² in the third quarter. The result is 8% below the figure of 114,000 m² achieved in the same quarter last year.

The turnover volume of 402.000 m² (including owner-occupiers) posted for the first nine months of 2014 is 7% below the previous year's figure of 432,000 m². The turnover to date is also below average from a long-term perspective: 16% (479,400 m²) below the five-year average and 17% (484,300 m²) below the ten-year value.

Despite this, market activity in Munich's office space market was brisk over the past three months. There were, however, no large-scale leases. According to Cushman and Wakefield (C&W), the international commercial real estate organisation, the segment between 1,000 m² and 3,000 m² was in particularly high demand. This trend had already emerged in the previous six months. For the full three quarters to date in 2014, contracts in this size segment contributed a turnover volume of around 136,000 m², corresponding to a share of around 34% office space turnover in the Munich market area.

The IT and communication segment displayed particularly strong leasing figures. Around 16% of all contracts in the third quarter and 15% in the period January - September 2014 were concluded with lessees from this sector.

Hubert Keyl, Head of the Office Leasing Department at Cushman & Wakefield in Munich, stated: “The strength and attractiveness of Munich as a location is also reflected in the lease activity outside the city limits. For many companies, relocating to the well-connected surrounding area is an entirely viable option, and a number of contracts have been concluded as a result.” 

The vacancy rate once again fell moderately in the third quarter of 2014. At the end of September, it stood at 6.5%, with around 1.3 million m² space available on a short-term basis.

The completion of around 48,300 m² new-build space increased the total stock of office space in Munich by around 2%, resulting in a total of around 20.2 million m² as of the end of September. Around 313,700 m² is currently under construction. Of this, 43,000 m² is expected to be completed by the end of the year and 90% of the space has been leased in advance.

The upward pressure on the top level lease price, which was achieved for prime space in the city centre, eased during the course of the quarter. It increased from EUR 32.50 per m²/month to EUR 33.00 per m²/month. Since the parameters driving the upward pressure (strong demand and a low level of suitable supply) continue to determine the office market Munich, there is potential for the top lease price to ease further by the year end.

Hubert Keyl has an optimistic outlook for the fourth quarter: “There are a number of large-scale requests for spaces in excess of 5,000 m² in the pipeline. We therefore anticipate the market to experience a further upturn during year-end business.”