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FR ANKFURT
SKYSCRAPER IN
FRANKFURT
A TRANSFORMING
MARKET
As a financial and service center, Frankfurt am Main is the
only major German city to display impressive high-rise
buildings that make up its characteristic skyline. These
high-rises, some of which are among Germany’s tallest
buildings, are meanwhile part and parcel of the cityscape
and their attractive office, hotel and residential space is in
high demand among occupiers.
Despite their significance for the real estate market, Frank-
furt’s office towers have to date not been sufficiently ana-
lysed with regard to their special characteristics, features
and their supply structure. After all, skyscrapers appeal to
particular target groups, traditionally generate the highest
rents on the market and function as representative land-
mark buildings in central locations of the city. As a result
of the increasing shortage of space, more and more new
developments are dependent on both city planning and
general economic conditions.
With SKYSCRAPER Expert, Colliers International has con-
ducted an in-depth analysis of Frankfurt’s office towers
as cornerstones of the office real estate market. In addi-
tion to evaluating key industry structures, vacancy, rental
trends and the investment market, this analysis also in-
cludes future property development activity. All high-rises
with office use in central locations* and a height of above
60 metres are included in the analysis, or a total of 39
stock properties and six property developments featur-
ing roughly 1.6 million sq m of office space. This spectrum
gives us a precise image of the market.
KEY FACTS
OFFICE HIGH-RISES IN FRANKFURT
Almost
37% 100,000 sq m 4
of office stock* of office space in the high-rises are taller
highest tower than 200 metres
Almost
€ 30.70/sq m € 1.5 bn 48%
weighted average rent were invested in of all high-rises are
Frankfurt office owned by foreign
high-rises in 2017 investors
*Submarkets Banking District, City, Central Station/Westhafen, Westend
3
WHICH TENANT GROUPS
PREFER SKYSCRAPERS? TOP-3 INDUSTRIES BY SUBMARKET TOP-3 INDUSTRIES BY FLOORS
(SQ M IN %) (SQ M IN %)
BANKS SET THE TREND ON THE MARKET
BANKING DISTRICT >36
• The Frankfurt office market is dominated by banks. This
is particularly true for high-rises in downtown locations 26-35
where financial institutions often occupy large-scale, ad- WESTEND
joining premises or entire buildings. 16-25
CITY
• As such, the share of space taken up by banks in Frank- SUBMARKETS AT TRACT A VARIED TENANT 8-15
furt‘s downtown office skyscrapers is remarkably high. MIX
Banks account for roughly 650,000 sq m, or around 50%,
CENTRAL STATION / WESTHAFEN 0-7
of total office take-up. Law firms come in second with a • The Banking District lives up to its name in terms of the
share of just under 14%. high-rise tenant mix. Banks are by far the most impor- 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
tant tenants in the submarket with a market share of
• All eleven of the single-tenant high-rises analysed are well over 50%. Banks onstruction and real estate
C Banks Legal consultants
occupied by banks or financial advisors, a strong indica- Legal consultants Public administation M anagement and Financial advisors
tion of the dominant market position these tenant groups • The adjacent Westend submarket is also in high demand F inancial advisors IT tax consultants
hold. The largest users include DZ Bank and Commer- with banks, while the City and Central Station/Westhafen
zbank. submarkets are dominated by law firms, public adminis- All evalutions refer to skyscrapers in the submarkets Banking District, City, Central Station/Westhafen, Westend with a building height of 60 metres and more
tration and associations.
• Multi-tenant properties are also primarily occupied by
banks. However, the occupier mix here is much more CONSULTING FIRMS PREFER OFFICES WITH
varied, with financial institutions (29%) ranking ahead GREAT VIEWS
of legal consultants (21%), although by a small margin.
• High-rises offer unobstructed city views in contrast to
CURRENT TRENDS ON
other office buildings. Law firms particularly seem to pre-
fer offices at lofty heights. They usually look for offices
that are at heights above 70 metres or higher than the
SHARE OF INDUSTRIES
( A R EA IN %)
15th floor.
• Banks often use open-plan offices on the lower floors
THE LEASING MARKET
19% of high-rises as customer service areas, making them
the dominant tenant group for units below the 15th floor. VACANCY AND VACANCY RATE
RECENTLY ENORMOUS VACANCY SHORTAGE ( I N 1 , 000 S Q M/ % )
• High-rises taller than 150 metres are rare in Frankfurt - 600 15%
5% only 15 office towers in the city offer space in this seg- • Vacancy rates for high-rise buildings have dropped sig-
13.1%
47% ment. In addition to banks and lawyers, management nificantly due to the high demand for office space in
6% consultants also represent an important demand group central locations. The reduction in vacancy has acceler- 10.9% 11.3%
for these offices (from floor 36). ated considerably since 2016. Vacancy rates in high-rises 12.0%
have dropped by almost 70% compared to 2013 and by 400 10%
9% around 60% for the total market.*
7.6%
• At the end of the first half of 2018, only around 61,000
14% SELECTED LARGE-SCALE HIGH-RISE TENANTS sq m of high-rise office space was available for immedi- 200 5%
Banks ate tenancy, mostly located in the Banking District. This
Legal consultants TENANT/USER PROPERTIES SPACE reflects a vacancy rate of 3.7%. 3.7%
Financial advisors
Management and tax consultants DZ Bank City-Haus I, Westend 105,000 sq m
Transportation companies Tower 0 0%
2013 2014 2015 2016 2017 H1 2018
Other Commerzbank Commerzbank-Tower 95,000 sq m
Deutsche FBC, Skyper, Trianon 83,500 sq m Total vacancy rate Total vacancy
Bundesbank High-rise vacancy rate High-rise vacancy
Deutsche Bahn die welle, Silvertower 68,000 sq m
Move-In within three months, submarkets Banking District, City, Central Station /
Deutsche Bank Deutsche Bank Towers 63,000 sq m Westhafen, Westend
5
H I G H - R I S E S G E N E R AT E A B O V E - AV E R A G E
PRIME AND AVERAGE RENTS
(IN € /SQ M ) WHAT ROLE DO
S K YS C R A P E R S P L AY A S
RENTS
45
• Historically, prime rents in the Frankfurt office market are
INVESTMENT PRODUCTS?
40
achieved in the high-rise segment, mostly for new-builds
or revitalised properties. Prime rents have climbed by 35
almost 12% to a current € 42.50 per sq m since 2013. The
30
weighted average rent has stabilised since 2016 amount-
ing to € 30.70 per sq m in the first half of 2018. That puts 25
asking prices for high-rises roughly 20% above the rents PRIME YIELDS FOR HIGH-RISES WITH SIGNI- TRANSACTION VOLUME / NUMBER OF DEALS
20
recorded on the market as a whole. FICANT DECLINE AND PRIME YIELDS
2013 2014 2015 2016 2017 H1 2018
O F F I C E TOW E R S / O F F I C E PROPERTIES ( IN €BN / %)
Prime rent high-rises
• The average rent for high-rise office space is highly • High-rises shape the investment market in the central
Average rent high-rises
dependent on large-scale leases, which is why several Frankfurt submarkets and are popular with both German 3.5 5.5%
Average rent total market
contracts signed at lower rents causing a significant and foreign investors due to their landmark character 3.0 5.0%
Weighted average rents and prime rents comprise the top price segment with a 3 % share
drop in 2016. in take-up (not including owner-occupiers) over the past twelve months and indicate the and size.
median value based on number of leases signed 2.5 4.5%
• The market share of Frankfurt office towers has increa-
2.0 4.0%
BANKS AND CONSULTANTS PAY sed considerably over the past couple of years due to
32
HIGHEST RENTS AVERAGE RENTS BY INDUSTRY a small number of high-volume transactions. Between 1.5 46 30 40 41 3.5%
(IN € /SQ M ) 2013 and 2017, the average share of the total transaction
Volume in €bn
1.0 3.0%
• Legal consultants are more willing to pay higher rents 33
volume claimed by high-rise buildings came to around
10
than other sectors, with rents above-average at more 55%. The pipeline is well-stocked and we expect market 0.5 2.5%
32
than € 32.00 per sq m. This can also be attributed to shares to exceed 60% in 2018 and 2019.
0 6 8 7 4 5 2 2.0%
the higher number of leases signed for more expensive
30 2013 2014 2015 2016 2017 H1 2018
offices on higher floors. Financial advisors pay the sec- • Due to the high demand for real estate as a safe in-
LEGAL CONSULTANTS
FINANCIAL ADVISORS
ond-highest average rent, just ahead of banks. vestment class in a low interest rate environment, prices Office prime yields
TAX CONSULTANTS
MANAGEMENT AND
AND REAL ESTATE
28 have started to increase significantly over recent years. High-rise prime yields
CONSTRUCTION
• Construction and real estate companies have recently Prime yields have decreased accordingly, falling by 165 Transaction volume high-rise
increased their market share considerably, playing an 26 bps since 2013. Prime yields fell by 100 bps in 2017 alone. Transaction volume office
important role in the tenant mix of high-rise buildings. BANKS
Prime yield refers to the (gross) initial yield for top-quality assets with high-end fixtures
Business centers and coworking providers have estab- • This trend, however, recently slowed due to the current and fittings in top locations
24
lished themselves on the market, occupying larger units price level. In H1 2018 prime yields for office towers and
in high-rise buildings. An average rent of roughly € 30.00 multi-storey office buildings were recorded at 3.3%.
per sq m demonstrates the willingness of these tenant
groups to pay higher rents. FRANKFURT OFFICE HIGH-RISES AS A
POPULAR INVESTMENT PRODUCT
RENTS FOR PRIME BUILDINGS • A multiple oversubscription can be observed in numerous
SIGNIFICANTLY HIGHER sales processes of high-rise buildings. Investors‘ invest-
AVERAGE RENT BY BUILDING QUALIT Y ment pressure in the high-rise segment thus encounters
(IN € /SQ M ) OWNERSHIP STRUCTURES OF OFFICE a very limited supply and causes a sustained product
• The services offered and the high quality of the build-
ings result in higher office rents in Frankfurt’s high-rises. HIGH-RISE BUILDINGS shortage. Brexit has also contributed to the attractive-
Office tenants show an increasing willingness to pay
35 (NO. IN %) ness of Frankfurt office towers as an investment product,
14% generating additional demand from foreign investors.
more for access to spectacular views, particularly in
30
new buildings. The newest high-rises are posting aver-
age rents of just under € 35.00 per sq m. • High-rises shape the market and are achieving ab-
25 ove-average prices. In 2017, the average price per sq m
• More price-sensitive users looking for relatively afford- for high-rises in central locations exceeded that paid for
16%
able high rise office space are finding fewer options 20 regular office buildings by almost 50%. Prices paid per
in less high-end buildings, paying an average rent of sq m for office towers have increased by almost 60%
around € 24.00 per sq m. 15 52% since 2013 due to ongoing high demand.
A+ A B C
Building quality with regard to room layout, facades, cabling, heating, etc.
18%
Germany
other EMEA-countries
Americas
All evalutions refer to skyscrapers in the submarkets Banking District, City, Central Station/Westhafen, Westend with a building height of 60 metres and more APAC
7PU RCHASE PRICES FOR HIGH-RISE
OFFICES/OFFICE BUILDINGS WHAT WILL BE
BUILT IN THE
( IN €/S Q M )
10,000 HIGH-RISE OFFICE STOCK BY YEAR VOLUME OF NEW OFFICE SPACE IN HIGH-RISE
9,000
8,000 FUTURE? OF CONSTRUCTION
( I N 1 , 000 S Q M / N O . O F P RO P E RT I E S )
BUILDINGS
( I N 1 , 000 S Q M)
7,000
500 100
6,000 12 90
5,000 N E W D E V E LO P M E N T S W I L L C H A N G E T H E 400 80
4,000
SK YLINE 18 70
300 60
3,000 6
• In the past, economic boom phases have caused in- 11 50
2,000 creasing construction activity on the Frankfurt high-rise 5
200 40
2013 2014 2015 2016 2017 H1 2018 market. Around the turn of the millennium, for exam- 30
ple, numerous projects were realised that contributed 3
Purchase price office buildings € / sq m 100 20
significantly to the development of the skyline. These 10
Purchase price high-rises offices € / sq m
include Commerzbank Tower (1997), Main Tower (1999) 0
0
and Skyper (2004). until 1976 1976 1996 2006 2018 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
1975 - - - - -
TR ANSACTIONS BY ACQUISITION T YPE 1985 1985 2005 2017 2023
• Recent years saw further landmark buildings such as
( TAV IN %, 2013 – H1 2 0 18)
Opernturm (2009), Tower 185 (2011) and Taunusturm
(2014) added to the skyline.
2% 3%
6%
• More major high-rises will be added to the market in the
4%
future. Around 250,000 sq m of high-rise office space will
be under construction or in the planning stage over the
next five years. Although well above the total of around
135,000 sq m for the years 2013-2017, this figure merely
reflects an average construction activity considering the
Core current high demand.
Core+
Added Value • Projects that consistently follow mixed-use concepts are
Opportunistic particularly significant for the real estate market. These
85% include OMNITURM (completion in 2019) and FOUR, a
Development
large-scale development scheduled for completion in
All evalutions refer to skyscrapers in the submarkets Banking District, City, Central
2022/2023.
Station/Westhafen, Westend with a building height of 60 metres and more
CORE SEGMENT ACCOUNTS FOR MAJORITY
OF TRANSACTION VOLUME
• Core products dominate the popular high-rise segment,
i.e. high-quality properties in prime locations with well-
known tenants and long leases. Other acquisition types
are generating small market shares due to limited supply.
Opportunistic deals and developments account for just
5% of the total transaction volume, including recent sales
of properties such as Global Tower and the Deutsche
Bank site on Junghofstraße.
• Particularly high volumes in the three-digit million range
have recently been achieved in prime properties with
well-known tenants. Examples include Tower 185 and the
Gallileo high-rise.
Plot s of land with possible office use according to high-rise framework plan 2008 under construction concept phase
planned building plot
All evalutions refer to skyscrapers in the submarket s Banking District, City, Central
Station/Westhafen, Westend with a building height of 60 metres and more
9WHAT DOES THE FUTURE
HOLD FOR HIGH-RISES? T E N A N T S E RV I C E S –
W H AT D O FR A N K FU RT ’S S K YS C R A P E R S O FFE R?
MIXED-USE – THE TREND OF THE FUTURE? SERVICE OFFERS IN OFFICE HIGH-RISES
(SCORING OF THE OFFERS IN THE OBJECTS IN %) • Office tenants are increasingly requiring addi-
• As “vertical cities,” high-rises are ideally suited for ac- tional services such as restaurants, in-house
100%
commodating several uses under one roof. This trend child care and fitness facilities.
has been ongoing for many years on a global scale but
has not yet caught on in Germany. • Many high-rises in Frankfurt are already well-
equipped to fulfill the requirements of their
• Frankfurt’s high-rises have typically been subject to tenants, but the services offered differ widely.
a strict separation of use. It wasn’t until the 1990s that While most towers offer an average range of
greater emphasis was placed on mixed use in the form services, new developments set themselves
of public administration tenants. Taunusturm, which was apart with numerous amenities.
built in 2014, was the first property to integrate offices,
apartments and a museum. However, the 44 apartments • Restaurants and cafes are currently the most
are located in a separate tower. common “added perk.” Coworking space and
0% 25% 50% 75% business centers, which improve tenant flexibil-
• We expect to see a growing interest in mixed-use prop- ity and appeal to small companies and start-
No services Maximum services ups, are becoming increasingly important as
erties among office tenants going forward. This trend
calls for a new type of high-rise building, which is already well.
1 object objects
3 5 objects
being implemented in some projects. Mixed-use towers
2 objects 4 objects 6 objects
offer tenants and investors a popular product while also
making an important contribution to creating an attrac-
tive usage mix in the city centre.
ARE DEVELOPMENT SITES BECOMING
SCARCE?
• For around 20 years, high-rise development has been
regulated by the Frankfurt high-rise framework plan.
The idea is to have designated building sites in suitable
locations in order to prevent skyscraper developments S U M M A RY O U T LO O K
in residential areas.
• The framework plan was last updated in 2008 and most • Frankfurt’s office towers are currently characterised by • Current property developments are creating new quality
of the designated sites have either already been devel- high demand and decreasing vacancy. They have prov- standards on the market in terms of design and services
oped or are at least scheduled for development (archi- en successful on the market despite the fact that their and will challenge stock buildings despite high demand
tectural competition finalised). floor plan design is often less efficient in combination and low vacancy rates.
with higher rents and operating costs.
• Since the publication of the framework plan, some sites • Going forward, it will be important to continue to fully tap
have been re-designated for residential development, • Average rents are currently around 20% above the mar- the potential of existing properties if they are to remain
e.g. in the city centre or near the trade fair. Most of the ket average. Law firms and financial service providers in an attractive product that meets tenant requirements.
few sites that are currently available for office develop- particular are prepared to pay above-average rents for In this context, the life cycles of skyscrapers between
ment are also located near the trade fair. As such, it is space at prime properties while banks tend to take up their construction and a complete refurbishment or new
imperative that the planned update of the framework the largest-scale space. development will tend to shorten.
plan creates potentials for new development sites.
• Not least due to their size, high-rises are also a very pop- • In order to remain an internationally competitive high-
ular product on the investment market. This is reflected rise metropolis, Frankfurt needs innovative property de-
in higher prices per sq m, an extremely high transaction velopments and, above all, suitable building sites. Due
volume and low yields. to the scarcity of available building sites, an updated
framework plan must therefore identify additional po-
tential areas.
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