Property Investors Keen on Frankfurt Office Market

By Andreas Krone and Lenny Lemler

Krone is CEO of NAI apollo, the German affiliate of NAI Global Lemler is Partner and Co-Head of Investments with NAI apollo Both men are based in the firm’s Frankfurt headquarters.

Andreas Krone

Andreas Krone

Lenny Lemler

Lenny Lemler


There is clear evidence that Germany’s financial capital, Frankfurt am Main, is growing its reputation as Europe’s banking center by adding banking service units from at least a dozen financial services firms or units.

Japan’s Nomura Holdings Inc. and Sumitomo Mitsui Financial Group Inc., plus a unit of the U.S.’s Citigroup, are taking the lead in relocating portions of their enterprises to this German city. Without a doubt, some of this activity is related to Brexit.

According to NAI Global’s affiliate in Germany, NAI apollo, Japan’s Nomura wants to move more jobs from London to Frankfurt because of the UK’s upcoming exit from the European Union. To date, Nomura has relocated more than 100 employees to Germany and Austria. In London, Nomura currently has approximately 3,000 employees. Also, the smaller Japanese bank Daiwa Securities is considering relocating employees from the Thames to the Main. Further, another Japanese bank, K.K. Mizuho Financial Group, is planning to open a branch in Frankfurt.

Here is a list of recent leases by banking institutions in Frankfurt, as well as Deutsche Bank’s occupancy profile (Source: NAI apollo).

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Square Meters Conversion to Square Feet: A multiplier of 10.76

Thus, Goldman Sach’s 5,800 sqm = 62,408 square feet, and Deutsche Bank’s overall footprint in Frankfurt is about 1.67 million square feet.

Even without the surge in bank-related activity, Frankfurt’s economy has consistently improved since rebounding from the global recession, and demand for all types of real estate space, including residential units, is being driven by population growth. Since 2009, Frankfurt’s population has grown from just under 650,000 to about 730,000 as of the end of 2016.

Unemployment stood at 5.8 percent as of May 2017, all of which is having a positive impact on Frankfurt’s office market.

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Take-up (leasing) activity in Frankfurt during the first half of 2017 was 12.6 percent greater than the first six months of last year, with approximately 2.67 million square feet of office space leasing through June of this year. That also beat the average for the last 10 years by 15.7 percent, according to NAI apollo.

The majority of the absorption has been by mid-size space occupiers. During the first half of 2017, NAI apollo reports the bulk of leases to have been between approximately 53,000 square feet and 108,000 square feet. Contracts in this size range more than doubled compared with the first half of 2016.

The strongest submarkets were Bankenlage (CBD), where 35 deals were signed totaling 513,252 square feet, the Westend with 56 deals totaling 334,636 square feet and Bahnhofsviertel (the train station quarter), where 35 lease transactions were completed for a total of 231,340 square feet of office space leased in the first half of 2017.

Frankfurt’s financial district, or Bankenviertel, is not an official city district and comprised of fewer than 10 streets in the western part of Innenstadt, the southern part of the Westend and the eastern part of Bahnhofsviertel.

Not surprisingly, banks, financial services and insurance companies retained the number one spot in ranking industry types and office leasing. This group accounted for 17.4 percent of all office leases done in the first half this year, followed by consulting, marketing and research (14.3 percent) and communications and IT, with 12.4 percent of total lease absorption.

Three of the top five leases were completed by financial institutions. Deutsche Bahn AG took 77,472 square feet at Mainzer Landstrabe 185 in Bahnhofsviertel, Deutsche Bundesbank leased 75,320 square feet at Trianon, Mainzer Landstrabe 16-24 in Bankenlage, while the European Central Bank leased a little over 72,000 square feet at Japan Center, Taunustor, also in Bankenlage.

The Central Business District (CBD), which includes Bahnofsviertel and Westend submarkets, remained the most popular location for office users and increased market share significantly from 51.3 percent in the previous year to 60.9 percent.

Frankfurt’s overall office vacancy rate is at 10 percent. Rental rates average EUR 39 per square meter (About $46 in USD) for prime space yet EUR 19.50 for the overall office market. Overall rents in Frankfurt have been remarkably stable in the last 10 years. In 2006 rents averaged EUR 17 per square meter, reached a high of EUR 21 in 2008 and have stayed near EUR 20 since 2009.

Frankfurt’s total office inventory is about 122 million square feet.  NAI apollo is forecasting that Frankfurt will have nearly 6 million square feet of gross leasing absorption this year.

Germany’s biggest cities all enjoyed a strong first half of the year for office leasing. Occupiers leased over 4.42 million square feet in Munich, 4.25 million square feet in Berlin, 3.2 million square feet in Hamburg and approximately 2.37 million square feet in Dusseldorf.

For financial firms in London – or New York and Dubai, for that matter, Frankfurt has some advantages. “We are in the middle of Europe and have excellent transportation infrastructure – airport, trains, and major roadways. Everyone speaks reasonably good or very good English. Rental and purchase prices for real estate are moderate – certainly compared with other capital cities, and Frankfurt is the financial capital of one of the biggest and most important economies in the world,” said Andreas Krone, CEO with NAI apollo in Frankfurt.

Increased demand for office space and higher occupancy rates is driving investment activity in Frankfurt. “There is growing belief in further positive development of the letting turnover and prime rents. Hence, investments especially in the value-add and opportunity sectors are increasing as investors are willing to take more risks,” according to Krone.   

Accordingly, property values and sales volume are increasing, albeit slower than they have in recent years, which were substantial.

During the first quarter this year, EUR 2.08 billion in office properties sold, while EUR 1.37 billion of offices were traded in the second quarter of 2017. Investment volume is expected to exceed EUR $5 billion for the year. The unabated demand for Frankfurt office real estate is driving down investment yield, with the top yield currently around 3.5 percent (same as the U.S. ‘capitalization rate.”)

“Investors and speculators are taking closer looks at some of our submarkets for opportunity.

Yields, even though they are lower than previous years, are traditionally higher here due to the higher risks and lower reletting probability. However, investors are now trying to acquire properties and hoping to lease those quickly, thereby adding value to their investment,” said Lenny Lemler, Partner and Co-Head of Investment with NAI apollo in Frankfurt.