The submarkets comprising peripheral locations (including Eschborn, Offenbach/Kaiserlei and the Airport District) recorded a higher take-up of 141,000 sq m (41% of total take-up) than the traditionally strongest CBD cluster (Banking District, City, Westend). By the end of 2023, take-up in the CBD cluster amounted to 102,400 sq m (29% of total take-up). The largest share of take-up at submarket level was achieved in the Banking District (41,600 sq m/12% of total take-up). This was supported by lettings in the small to mediumsized segment of up to 3,000 sq m. The Eschborn submarket registered the second highest take-up in 2023 (36,800 sq m/11% of total take-up). Demand in this submarket, located outside the city boundaries of Frankfurt, is being driven by new-build and refurbished spaces of the highest quality coming onto the market in 2024 and 2025 at affordable prices and a lower trade tax rate compared to Frankfurt. At 25,100 sq m, the Airport District submarket also benefited from high demand compared to the previous year (+161%) and the average of the last five years (+28%). This is mainly due to the aforementioned deal of 11,900 sq m, the largest deal in 2023. The vacancy rate (excluding sublet space) increased significantly due to the completion of developments in the Airport District and Offenbach/Kaiserlei, as well as the vacating of office space in properties that do not meet modern fit-out standards or sustainability criteria, particularly in peripheral submarket locations. As a result, the overall vacancy rate rose by 1.0 percentage point YoY to 8.9%. At submarket level, vacancy rates rose by 0.2 percentage points to 4.1% in the Banking District and by 3.0 percentage points to 10.9% in the Airport District. The increase in vacancy in the Airport District is mainly due to the completion of the second construction phase of 'Flow' and 'The Move'. The two new buildings which came into the market in 2023 have contributed to approximately 22,400 sq m of vacant office space. In total, 486,000 sq m of refurbished spaces and new construction is expected to be completed by 2026. The projected office space pipeline for 2024-2026 has fallen by 7% YoY. This was due to construction freezes caused by developer bankruptcies and the cancellation of pre-letting agreements, as initially agreed rental prices could not be met. This was on the back of either higher construction and financing costs, or because of developments that were originally planned as speculative projects but cannot be realised in the current market environment without a pre-letting quota of 30% to 50%. 48% of new space (486,000 sq m) expected to come onto the market by the end of 2026 is pre-let as of 4Q 2023. In the CBD submarkets, 51% of the 173,800 sq m in the development pipeline comprises available (speculative) office space, while 49% is already occupied (pre-let). In the Banking District in particular, just under 58% of the planned 115,000 sq m is still available for lease. Within the submarket, the second office tower 'Tower 1' within the 'FOUR Frankfurt' development had the highest vacant space (speculative), which stood at 26,300 sq m as of 4Q 2023. It is scheduled for completion in 1H 2025. In the Airport District, 59% of the 10,200 sq m of office space scheduled for completion by 2024 is currently available. No further new or refurbished developments are currently planned in the submarket for 2025 and 2026. Prime rent increased by 3% YoY to €47.50 per sq m/ month, driven by sustainably certified space in newbuild quality developments in the Banking District. By contrast, the area-weighted average rent (rolling 12-months) for the entire market fell by 5% to €23.24 per sq m/month, as most tenants were more pricesensitive in the current economic environment. This has impacted the weighted average rents (rolling 12-months) achieved in the CBD submarkets, which declined by 9% to €30.04 per sq m/month. The submarkets of the city fringe and periphery locations benefited from an increase in demand, with average rents rising by 6% and 16% YoY. The area-weighted average rent (rolling 12-months) in the Banking District rose by 6% YoY to €35.74 per sq m/month. This was largely driven by lease agreements signed in the two office towers of the ‘Frankfurt FOUR’ development – ‘T4’ (completion in 4Q 2023) and ‘T1’ (completion in 2Q 2025). In the Airport District, both prime rent and the area-weighted average rent increased compared to 4Q 2022. The prime rent rose by 4% to €26.00 per sq m/month and the average rent by 20% to €22.87 per sq m/month driven by the supply of new office space. Frankfurt’s real estate investment market (including residential portfolios of 50 units or more) registered a transaction volume of €771 million in 2023, a 84% YoY decline. Commercial real estate accounted for €579 million, a 86% decrease YoY. Only €253 million was invested in office properties. There were no transactions involving Frankfurt's typical skyscrapers. The environment of high interest rates has led to hesitation in the investment market in 2023. Nevertheless, the ongoing repricing and structural trends on the letting markets offer investors with a value-add approach and opportunistic risk profile in the second half of 2024. Yields are also expected to stabilise. Over the course of 2023, yields have risen by 1.35 percentage points to currently 5.1% for prime properties in CBD locations, 1.15 percentage points to 5.4% for properties in city fringe locations and 1.9 percentage points to 6.7% in peripheral locations. Overview Leadership Performance Framework Other Information ANNUAL REPORT 2023 109
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