Press Release NAI apollo: Frankfurt Office Rental Market with One of the Weakest Results in the Last 30 Years
Frankfurt am Main, January 2, 2025
The Frankfurt office space market, including Eschborn and Offenbach-Kaiserlei, reached a new low in recent years in the fourth quarter of 2024. According to NAI apollo, a member of NAI Partners Germany, only 78,400 square meters of office space were taken up by tenants and owner-occupiers between October and December. The last time a weaker quarterly result was recorded was at the beginning of the coronavirus year 2021 with 76,200 square meters. At44% and 50% respectively, the result for the fourth quarter of 2024 is therefore also significantly below the five-year and ten-year average for the final quarters.
Together with the also below-average previous months, the full year 2024 closes with a total leasing volume of only 342,400 square meters. This result is not only around 28 percent below the long-term trend, but it is also the fourth weakest leasing result since 1995 (306,000 square meters) and thus in the last 30 years.
„The Frankfurt office market has not been spared the effects of economic stagnation and the structural problems of the German economy. Added to this are difficult economic policy conditions, which are reflected in the rental dynamics. Some hoped-for major deals that could have supported the market have so far failed to materialize,“ explains Martin Angersbach, Director Business Development Office Germany at NAI apollo. The latest forecasts and company surveys, such as those of the ifo Institute with expected GDP growth of just 0.4% for Germany in 2025 in the base scenario or the business climate index of the Frankfurt Chamber of Industry and Commerce, which is well below the growth threshold according to the most recently published economic survey, do not indicate any noticeable improvement for the first quarters of 2025 either.
„The slump in turnover is underlined by the significant reduction in the number of deals. The 425 deals recorded are around 28% below the average of the last ten years (2014-2023: 593). The current result is around 300 deals short of the market's last peak in 2017 and 2018,“ says Michael Preuße, Head of Office and Retail Letting at NAI apollo, assessing the situation.
Decline in almost all size classes
The decline in sales momentum affects almost all size classes. Compared to the also weak previous year, there are decreases of 6.5 percent in the 5,001 to 10,000 square meter segment and up to 12.8 percent in areas between 2,501 and 5,000 square meters. Only in the area above 10,000 square meters was there an increase of 47.9 percent due to the European Central Bank renting 36,800 square meters in Gallileo. „The largest transaction of the fourth quarter, and thus the second largest of the year, was by STRABAG SE, which intends to occupy 10,000 square meters in the ‚Seed‘ project in the Europaviertel,“ says Dr. Konrad Kanzler, Head of Research at NAI apollo.
Banks, financial service providers and insurance companies remain the most important demand group
With a take-up of 105,600 square meters, „banks, financial service providers and insurance companies“ will remain the most important demand group on the Frankfurt office market in 2024. This is followed by the „construction and real estate sector“ with 38,900 square meters, supported by the STRABAG lease, as well as the „industrial production and manufacturing sector“ with 37,800 square meters and the public sector with 29,400 square meters. In terms of geographical distribution, around 41% of take-up, or 141,600 square meters, was accounted for by the main locations in the Central Business District (CBD), with the banking submarket standing out in particular with 86,800 square meters. Other significant submarkets are Eschborn with 38,300 square meters, the city center with 26,500 square meters, City West with 25,000 square meters and the airport with 23,200 square meters.
Rent levels are rising significantly
The overall weak letting activity in combination with a high proportion of deals in projects, new buildings and revitalizations that are modern and generally ESG-compliant have caused the rent level on the Frankfurt office market to rise significantly. 34% of total take-up was registered in this high-quality space category. For deals above the 1,000 square meter mark, they even account for around 49%. As a result, the average rent has risen from EUR 24.60 per square meter in the third quarter of 2024 to EUR 25.10 per square meter. This corresponds to a year-on-year increase of 3.3%. „Over the last three months, the prime rent has increased by EUR 1.00 per square meter to currently EUR 49.00 per square meter due to further premium lettings in CBD projects, an increase of 3.2 percent over the 12-month period. This brings us even closer to the historic high from 2001, when the prime rent was EUR 53.00 per square meter. Based on projects currently being marketed and current applications, a further increase in prime rents towards this record level is likely in the medium term,“ explains Angersbach.
Highest vacancy rate since 2014
The increase in market-active vacancies on the Frankfurt office market continued in the final quarter of 2024. As at December 31, 2024, the market has around 1.26 million square meters available for rent in the short term, which is the highest absolute vacancy rate since 2014. The current vacancy rate is 10.9%, which corresponds to an increase of 0.5 percentage points compared to the previous quarter and 1.9 percentage points compared to the previous year. Of the total vacancy rate, around 10% is attributable to sublet space. „Based on previous and expected market developments, the peak vacancy rate of the current cycle should not yet be reached. Nevertheless, we are unlikely to reach vacancy figures of 1.7 to over 2.0 million square meters, as was the case after the financial market crisis or after the dotcom bubble burst. This is also indicated by the continuing decline in project planning,“ says Kanzler.
In 2024, a total of over 177,000 square meters of office space was completed, of which only 17% was still available at the end of the year. The most notable completions include the „T1“ of the FOUR development with around 74,000 square meters of office space and the „Kreisler“ with over 22,000 square meters. A noticeable decrease in the project volume is foreseeable for 2025 and 2026. Completions of 134,000 and 74,000 square meters respectively are currently expected.
Two-part outlook for 2025
„The difficult economic conditions with a stagnating economy will in all likelihood also have a firm grip on the first half of 2025. As a result, companies will largely hold back on rental decisions or even space expansions for the time being. At the same time, however, there are still some major searches on the market that should be concluded in 2025 and thus ensure higher take-up,“ says Preuße. However, as the preference is primarily for new buildings or new space, this is unlikely to have a positive impact on the vacancy situation. On the contrary, with the continuing trend towards downsizing leases, an additional increase in vacant space is to be expected, albeit at a slightly slower pace than in 2023 and 2024. The rental trend will remain stable for the time being, but has the potential to increase noticeably again due to further lettings in new construction projects.