Main regional real estate markets in Germany 2017 Office vacancies falling, thanks to steady demand – rents for retail properties stabilise at a high level
A Research Publication by DG HYP | March 2017 Main regional real estate markets in Germany | 2017
1 Main regional real estate markets in Germany | 2017
Table of Contents
Preface ______2
Widespread growth in office and retail rents is over______3 Office properties: Modest rent growth and vacancy rates down sharply Retail properties: prime rents have virtually stopped rising
Augsburg ______18
Berlin ______21
Bremen ______23
Cologne______26
Darmstadt ______28
Dresden ______31
Düsseldorf ______34
Essen ______36
Frankfurt ______39
Hamburg ______41
Hannover ______43
Karlsruhe ______46
Leipzig ______49
Mainz ______52
Mannheim ______55
Munich ______58
Münster ______60
Nuremberg ______63
Stuttgart ______66
Locations at a glance ______68
Imprint ______71
Disclaimer ______71
DG HYP Offices ______72
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PREFACE
As the commercial real estate bank within the Volksbanken Raiffeisenbanken cooperative financial network, we have regularly analysed the markets we actively cover for several years, publishing the results in real estate market reports. Thanks to strong demand for commercial real estate in Germany, the popularity of regional locations amongst investors has grown significantly over recent years.F or this reason, we regularly publish a study ana lysing the main regional real estate markets for office and retail properties in Augsburg, Bremen, Darmstadt, Dresden, Essen, Hanover, Karlsruhe, Leipzig, Mannheim, Mainz, Mün ster and Nuremberg, comparing developments there with the top German metropolitan areas. Covering a total of 19 markets, with a broad regional diversification, the report thus provides a comprehensive analysis of the German commercial real estate market.
In the prosperous market environment that has characterised the past year, rents for office and retail properties continued to advance – on average – in the cities covered by the analysis. Even though – in percentage terms – the increase in top rents at the regional locations for the two segments under review fell short of growth rates observed in metro politan areas, the main regional markets often hold better opportunities for real estate investments when compared to the larger conurbations. This is due to the fact that rent developments are often more stable in the regional centres – moreover, yields are higher compared to the top locations. The outlook for the current year is also generally positive. As strong demand for office space meets a rather short supply, vacancies at all locations analysed keep falling strongly, with top office rents rising. The retail real estate market, in contrast, is showing signs of saturation, with rent increases beyond one per cent only possible at around half the regional locations. In this context, main regional centres offer stronger potential compared to metropolitan areas. Retail rents in the country’s largest cities, particularly at the best locations, have now reached a level where there is hardly any scope for further growth.
This eighth market report on “Regional Real Estate Markets” supplements “The German Real Estate Market” – our series of specialist publications published in the autumn of each year. In addition, we analyse the commercial real estate markets in individual German federal states: the regional report for Hesse, Rhineland-Palatinate, and the Saarland is scheduled for June 2017, with the report for Baden-Württemberg set to follow in Novem ber 2017. An overview of DG HYP’s real estate market reports is available on our website: http://www.dghyp.de/en/unternehmen/markt-research/
DG HYP
March 2017
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WIDESPREAD GROWTH IN OFFICE AND RETAIL RENTS IS OVER
In the commercial real estate market, generally high demand from investors has Eighth edition of the “Regional significantly raised the level of interest in housing portfolios or logistics properties, as property centres” report well as niche markets such as micro apartments and hotels in recent years. However, office and retail properties remain by far the most important market segments, and these are the areas we focus on in this report. The further sharp decline in rental yields last year is a signal of the consistently high demand for attractive properties in these two asset classes. The focus here is on large cities with high financial power and large and liquid property markets. As in most international property markets, the lion’s share of investment here is in commercial real estate. In Germany, these top locations – which are often regarded as a benchmark for the market as a whole – include the seven most densely populated cities. However, secondary locations also offer consid- erable potential. Rents here are usually more stable and yields are higher. In this eighth edition of our market report on Regional property centres, we address the growing need for information and market data on these locations, in order to better assess the risks and opportunities and compare them with those of the top locations. As previously, in addition to 12 regional centres throughout Germany, the market report also includes the 7 top locations as a reference point.
OVERVIEW OF LOCATIONS
12 regional centres 7 top locations (Index: Regional 12) (Index: Top 7)
City Federal state City Federal state City Federal State Augsburg Bavaria Leipzig Saxony Berlin Berlin North Rhine- Bremen Bremen Dresden Saxony Düsseldorf Westphalia Rhineland- Pala- Darmstadt Hesse Mainz Frankfurt Hesse tinate North Rhine- Essen Mannheim Baden-Württemb. Hamburg Hamburg Westphalia North Rhine- North Rhine- Hannover Lower Saxony Münster Cologne Westphalia Westphalia Karlsruhe Baden-Württemb. Nuremberg Bavaria Munich Bavaria Stuttgart Baden-Württemb.
In the following chapter we analyse the office market in the 19 locations included. A Office and retail: market overview of the retail sector starts on page 10, followed by individual analysis 12 regional centres and of all locations in alphabetical order from page 18. Pages 68 to 70 consist of tables 7 top locations showing the most important market data.
Office properties: Modest rent growth and vacancy rates down sharply
Impact of economic environment on demand for office space The solid performance by the German economy continued last year. Macroeconomic In 2016, economic growth in growth reached its highest level since 2011, up by 1.9 per cent on the previous year, Germany reached its highest level after a slightly slower pace of 1.6 and 1.7 per cent in the two previous years. Private for five years at 1.9 per cent and public consumption once again created the basis for the continuing upturn. While the former was also boosted by the low oil price, the latter expanded as a result of expenditure on accommodation and subsistence for migrants who arrived in 2015. Capital expenditure provided only weak growth impetus in 2016, while foreign trade made a slightly negative contribution.
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The pace of growth is likely to be slightly weaker this year. We expect macroeconomic Growth weaker in 2017, partly due to growth to be down by about a third on 2016 at 1.2 per cent. However, a good half of fewer working days the growth divergence compared to the previous year is due to a smaller number of working days. Adjusted for this factor the gap narrows to 0.3 percentage points. Continuing subdued export business and a rising inflation rate - which is likely to curb consumer spending slightly - militate against any stronger growth this year.
ECONOMIC FORECAST: MACROECONOMIC GROWTH RATE LIKELY TO LABOUR MARKET REMAINS POSITIVE: NUMBER OF PEOPLE IN WORK SLOW IN 2017 HAS RISEN UNTIL RECENTLY
12 44 13 forecast 10 43 12
8 42 11 6 41 10 4 4,1 40 9 2 3,7 3,3 3,7 1,2 0,7 1,1 0,5 0,5 1,6 1,7 1,9 1,2 1,8 39 8 0 0,0 -0,7 38 7 -2 37 6 -4 -5,6 36 5
-6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP yoy in % unemployment rate in % labour force in million (lhs) unemployment rate in % (rhs)
Source: DZ BANK AG Source: Federal Employment Agency
Demand for labour should therefore continue, ensuring further growth in employment; Demand for labour continues however, the almost linear growth could flatten. On the one hand, the increase of more than 4 million in ten years has already taken numbers to a record level. On the other hand, the regional shortage of skilled workers is growing. There is consequently virtually full employment in Bavaria and Baden-Württemberg with unemployment rates of less than 4 per cent. However, unemployment is also low in the federal states of Hesse and Rhineland-Palatinate at around 5 per cent. The national rate was calculated as 5.8 per cent in December 2016. The slight increase in the unemployment rate shown in the forecast graph on the left is mainly due to growing numbers of migrants who have arrived in Germany since 2015 seeking employment.
AT THE BEGINNING OF 2017 THE IFO BUSINESS CLIMATE INDEX FELL THE ZEW ECONOMIC INDEX STARTED THE YEAR WELL IN TERMS OF SLIGHTLY TO A HIGH LEVEL DUE TO WEAKER EXPECTATIONS BOTH CURRENT CONDITIONS AND EXPECTATIONS
indices 2005 = 100, seasonally adjusted 100 125 80 60 115 40 20 105 0 -20 95 -40 -60 85 -80 -100 75 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 economic sentiment economic situation expectations business climate business conditions
Source: Ifo Institute Source: ZEW
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Conditions in office markets remain solid Based on macroeconomic expectations and prospects for the labour market, the signs From an economic perspective, the are that the German office market will continue to perform well again in 2017. However, outlook for the office markets is there are also a number of risk factors this year which could have a negative impact good, but there are many risks on economic performance. For example, the still uncertain course of the Brexit negotiations, negative factors for export business due to protectionist decisions by the Trump administration, and forthcoming parliamentary elections in Germany, France and the Netherlands in 2017, when populist parties will exert a stronger influence than in the past. The potential uncertainty this may cause could prompt companies to adopt a wait-and-see stance, leading to weaker demand for office space than would otherwise have been expected based purely on the forecasting data.
However, in some cities the office markets are scarcely able to absorb stronger growth Supply shortage in the 19 locations in office jobs. High growth in office employment in recent years, accompanied by fairly reviewed has increased further modest levels of new office construction, has resulted in more office space being rented than built each year in virtually all the locations reviewed. This is evident from the 19 office markets analysed in this report which jointly account for approximately 110 million square metres of office space. The range extends from Augsburg, with around 1.4 million square metres, to the Berlin office market with 19 million square metres. The twelve regional centres jointly account for 30 million square metres, while the figure for the top seven locations is nearly three times as high at 80 million square metres.
REGIONAL OFFICE MARKETS AND TOP LOCATIONS BY SIZE IN THE LAST 10 YEARS ONLY A RELATIVELY LOW VOLUME OF NEW OFFICE SPACE HAS BEEN DEVELOPED
new office space in % of the total office space 4,5 14,9 11,9 11,4 10,1 10,1 9,8 8,5 8,2 8,2
7,7 4,0 7,2 6,7 6,6 6,0 5,6 5,3 4,8 3,5 -0,8 -0,9 3,0 2,5
18,9 2,0 13,8 13,7
10,3 1,5 7,6 7,6 7,6 4,6 3,6 3,0 2,7 2,6 2,6 2,4 2,2 2,0 1,6 1,6 1,4 1,0 0,5 0,0 1992 1996 2000 2004 2008 2012 2016 office space in million sqm change from 2006 to 2016 in % Regional-12 Top-7
Source: BulwienGesa Source: BulwienGesa
The situation looked very different after the millennium. Much of the office space de- The serious vacancy problem in the veloped during the dot-com boom was difficult to let after the number of office jobs fell middle of the last decade has been sharply when the bubble burst in the Neuer Markt and due to the economic turbulence resolved triggered by 9/11. The volume of vacant office space surged correspondingly. This trend was much more pronounced in the more volatile top locations than in the regional centres where office markets are usually subject to less fluctuation. Since roughly the middle of the last decade, the trend has however reversed; since then, the vacancy rate has declined almost continuously. Levels are clearly falling faster in the top locations – in an inversion of the previous sharp increase – than in the regional centres. The average vacancy rate of 5.1 per cent in the top locations has consequently slipped below the level of 5.8 per cent in the regional centres. The trend for the conversion of no longer marketable office space to living accommodation has accelerated in the top
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locations. These relatively expensive conversions have become increasingly attractive as residential rents in large cities have risen sharply.
OFFICE EMPLOYMENT GROWING FASTER THAN OFFICE SPACE IN OFFICE VACANCY RATES CONTINUED TO FALL STEADILY IN 2016 THE 19 LOCATIONS FOR 10 YEARS
vacancy rate in % 3,4 120 12 3,3 115 10 3,2 110 3,1 105 8 3,0 100 6 2,9 95 2,8 90 4 2,7 85 2 2,6 80 2,5 75 0 1992 1996 2000 2004 2008 2012 2016 1997 2001 2005 2009 2013 2017e office workers in million office space in milion sqm Regional-12 Top-7
Source: BulwienGesa, Feri Source: BulwienGesa
The fact that vacancy rates are being reduced in all locations is good news, although Vacancy rate falls to below in some cases the changes since 2006 shown below have been fairly modest. 3 per cent in Munich and Stuttgart Conversely, the proportion of vacant properties has declined significantly in some lo- cations. In Munich and Stuttgart, vacancy rates have contracted to a very small pro- portion of less than 3 per cent. However, there is also very little vacant office space in Berlin, Karlsruhe and Münster where the figure is around 3 per cent; it is therefore increasingly difficult to find suitable office accommodation, since any remaining vacant properties are located in a variety of office buildings in the metropolitan area. As va- cancy rates decline steadily, so does the likelihood of finding large-scale, interconnect- ing office space in a sought-after city area.
VACANCY RATES FOR OFFICE SPACE HAVE FALLEN IN ALL THE LOCATIONS REVIEWED
vacancy rate in % 28 2006 2016 24 Regional Top 27,2 12 7 20
16 18,2 12
8 11,6 9,9 10,8 9,1 10,0 8,9 8,5 8,2 7,7 4 7,6 6,7 6,6 6,4 6,4 6,3 5,9 4,8 6,3 4,5 4,6 8,4 5,4 4,5 3,6 11,8 5,5 4,9 3,0 6,1 5,8 3,0 5,6 8,3 10,7 5,3 2,7 2,9 5,1 4,9 4,9 0
Source: BulwienGesa
The decline in vacant office space may become a locational disadvantage if compa- The shortage of available office nies are unable to find suitable space, if constructing a new office building is not a space could lead to lower space feasible option. Companies, public authorities and educational establishments may take-up in 2017 also be unable to relocate or realise expansion plans. Because the vacancy rate is likely to continue to decline this year, it is conceivable that office take-up will be lower
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than in 2016. However, the top locations of Berlin and Munich, where space is in short supply, generated high revenues last year from office space. Stuttgart - where office take-up represents 5.2 per cent of total space - reported the highest levels of the 19 locations. Bremen and Leipzig - where the corresponding figure was 3.4 per cent respectively - are the regional centres with the relatively highest levels of office market activity. Mainz and Augsburg bring up the rear with 1.3 and 1.5 per cent respectively.
REGIONAL CENTRES UNAFFECTED BY GROWTH IN OFFICE SPACE REGIONAL CENTRES SHOW A WIDE RANGE OF OFFICE MARKET TAKE-UP IN TOP LOCATIONS ACTIVITY
office space take-up in % of the total office space 5,0 office space take-up 2016 in % of the total office space
4,5 5,2 4,9
4,0 4,6 4,5 4,5 4,2 4,0 3,5 4,0 3,4 3,4 3,0 3,3 3,0 2,8
2,5 2,7 2,6 2,5 2,4
2,0 2,2 1,9 1,5 1,5 1,3 1,0 0,5 0,0 1992 1996 2000 2004 2008 2012 2016 Regional-12 Top-7
Source: BulwienGesa Source: BulwienGesa
It is not surprising that prime office rents are increasing under prosperous market Prime rents increase further under conditions and as vacancy rates continue to fall: on average among the top locations, prosperous market conditions prime rents have risen notably by 4.9 per cent to EUR 28 per square metre. However, the rate of increase for the regional centres is much weaker at one per cent. Average prime rents here are approximately half the level of the major cities at EUR 13.60. The longstanding positive trend in rents is thus continuing. This was the sixth annual increase in succession in the top locations, and the eleventh consecutive rise in the regional centres. The cumulative increase of 23 per cent in prime rents over ten years in the regional centres is thus slightly stronger than the 21 per cent rent growth in top locations.
However, the higher average rents in the top locations last year are relative to the very Higher rents in Berlin drive growth in strong rent growth in Berlin. High demand for office space in the German capital has top locations led to double-digit growth rates there; given that Berlin accounts for a large proportion of total office space, this has resulted in a sharp increase in the weighted average. If prime rents in Berlin had remained stable, rent growth in regional centres and top locations would have been broadly on a par at around 1 per cent.
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PRIME RENTS IN TOP LOCATIONS ROUGHLY TWICE AS HIGH AS IN AVERAGE PRIME RENTS HAVE RISEN CONSISTENTLY IN REGIONAL REGIONAL CENTRES CENTRES SINCE 2006
prime rent in Euro per sqm prime rent yoy in % 35 12 9 30 6 25 3 20 0
15 -3 -6 10 -9 5 -12
0 -15 1997 2001 2005 2009 2013 2017e 1997 2001 2005 2009 2013 2017e Regional-12 Top-7 Regional-12 Top-7
Source: BulwienGesa Source: BulwienGesa
The diagram below shows prime rents in the 19 locations last year and also the rent Apart from Berlin, prime rents have growth realised compared to the previous year. Apart from the “outlier” Berlin, no other risen fairly moderately market achieved well above-average rent growth. Prime rents stagnated in five locations. Apart from Berlin, four locations reported growth of more than 2 per cent. The other nine office markets showed moderate increases of 0.7 to 1.8 per cent.
The range of prime rents in the regional centres extends from EUR 12.50 per square Prime rents range from EUR 12.50 metre in Augsburg to EUR 15.20 in Mannheim. The top locations range from nearly to EUR 35.50 per sqm EUR 20 per square metre in Stuttgart to around EUR 35 in the two most expensive German office markets of Frankfurt and Munich. The gap between rents in Munich and Frankfurt has thus narrowed significantly: prime rents in Munich have risen from year to year, while the banking centre of Frankfurt has experienced some periods of zero increases.
PRIME OFFICE RENTS 2016: MODEST RENT INCREASE EXCEPT FROM BERLIN AND HAMBURG
16,7
4,9 2,5 2,4 2,3 2,2 2,1 2,1 4,0 0,0 0,8 0,8 0,8 1,0 0,0 0,7 0,0 1,3 0,0 1,8 0,0
12,5 12,5 12,6 12,7 13,0 13,1 13,3 13,6 13,8 14,0 14,2 14,8 15,2 19,7 21,0 24,5 26,0 28,0 28,0 34,7 35,5
Augs- Bre- Dres- Mainz Leip- Darm- Karls- Reg- Nurem- Essen Mün- Hann- Mann- Stutt- Cologne Düs- Ham- Ber- Top- Munich Frank- burg men den zig stadt ruhe 12 berg ster over heim gart sel- burg lin 7 furt dorf prime rent 2016 in Euro per sqm prime rent yoy in %
Source: BulwienGesa
Premium office accommodation is a perennial favourite for commercial property inves- Investor demand for prime office tors. Last year was no exception: despite average growth in office rents, initial rental properties remains steady yields for office space clearly weakened again as a result of further increases in purchase prices. Consequently, average initial rental yields in top locations fell below 4 per cent for the first time; the exact figure is 3.6 per cent. As a result of this decline,
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the yield divergence compared to the regional centres widened to its greatest extent ever of 1.3 percentage points. Yields in the regional centres did also fall in 2016, but not to the same extent. As in the retail sector, Munich is also the most expensive location for investors in terms of office space. Augsburg – which is not far from the Bavarian capital – came in at the other end of the range for the locations reviewed, with rental yields of more than 2 percentage points higher.
OFFICE YIELDS FELL AGAIN IN 2016 YIELD RANGE OF AROUND 2 PERCENTAGE POINTS
office: net initial yield (central locations) in % office: net initial yield (central locations) in % 7,0 6,0
6,5 5,5 6,0
5,0 5,4 5,3 5,3 5,3 5,5 5,0 4,5 5,0 5,0 5,0 5,0 5,0 5,0 4,8 5,0 4,7 4,0
4,5 4,1 4,1 4,1
3,5 3,9 4,0 3,6 3,6 3,0 3,3
3,5 3,2 2,5 3,0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Top-7 Regional-12
Source: BulwienGesa Source: BulwienGesa
Office market summary and forecast Apart from Berlin, the clear shortage of available office space has not been reflected 2017 forecast: vacancy rate cut in a more significant rise in prime rents. This is indicative of the cautious approach again and moderate rise in prime being adopted by prospective tenants. For expensive rented office space drives up rents material costs, but does not lead to any improvement in business performance. Particularly in times of uncertainty when there are various economic risks, high rental commitments could in hindsight prove to have been a mistake. Partly for this reason, we do not expect rent growth to accelerate, despite the likelihood of a further shortage of available space. We expect rents in the top locations to grow by almost 2 per cent. In addition to the supply shortage accompanied by likely buoyant demand, a certain amount of growth could be achieved in the large Frankfurt office market as a result of the Brexit effect. We expect rents in the regional centres to grow by roughly half this level; partly because average vacancy rates here are also higher.
OFFICE – FORECAST FOR PRIME RENTS AND VACANCY RATES
2015 2016 2017e 12 regional centres Prime rents in EUR/sqm (y-o-y in %) 13.5 (+2.0) 13.6 (+1.0) 13.8 (+1.3) Vacancy rate in % (y-o-y in % points) 6.1 (-0.4) 5.8 (-0.3) 5.6 (-0.2) 7 top locations Prime rents in EUR/sqm (y-o-y in %) 26.7 (+1.9) 28.0 (+4.9) 28.5 (+1.8) Vacancy rate in % (y-o-y in % points) 5.7 (-1.1) 5.1 (-0.6) 4.8 (-0.3)
Source: BulwienGesa, DZ BANK AG forecasts all averages are space-weighted
Prime rents represent the average of the top 3 to 5 per cent of market rentals, and the stated figure does not therefore correspond to the absolute prime rent.
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Retail properties: prime rents have virtually stopped rising
Last year was a turning point for retail properties. For while the retail sector reported While retail sales are growing good results again with positive sales growth, the upward trend in prime rents evident strongly, rents continue to rise in for more than ten years largely came to a halt. Only a few cities – mainly among the only a few locations top locations – were still reporting growth in prime rents in 2016. The halt in rent growth among the regional centres is therefore more widespread: in most cases prime rents have stagnated, and in individual cases they have even fallen. Has the upturn in retail properties in prime locations and in shopping centres close to city centres thus also come to an end? Or is this merely a blip in an ongoing upward trend?
General economic climate for retail The solid economic conditions in Germany described in the section on office property General economic climate creates on page 3 form the basis of the positive trend in the retail sector. Record employment favourable conditions for private levels and a halving of the number of people out of work from a peak of more than consumption 5 million recorded in 2005 mean not only more cash in the pockets of private house- holds, but also an easing of concerns about social decline and unemployment. Other factors are also boosting private consumption. Low inflation rates since 2014 – mainly due to the decline in the oil price – together with strong wage growth and pension adjustments, have led to high growth in real disposable incomes. Low interest rates have also made saving a less attractive option.
LOW INFLATION RATES SINCE 2014 … … LEAD TO HIGH REAL INCOME GROWTH
3,0 3,5
forecast 3,0 2,5 2,8 2,5 2,5 2,0 2,3 2,0 2,1 1,5 1,9 1,8 1,8 1,5 1,0 1,6 1,6 1,5 1,3 0,5 1,0 1,1 1,2 0,0
0,5 0,8 -0,5 0,2 0,1 0,4 -1,0
0,0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 real disposable income of private households yoy in % inflation rate (HICP) average since 1992
Source: DZ BANK AG Source: DG ECFIN AMECO
All of these factors combined are responsible for the currently buoyant consumer In addition to higher incomes, climate. The index compiled by GfK climbed to around 10 points in spring 2015 and the positive consumer climate, has since maintained this level - its highest since 2001. A high propensity to buy, flourishing tourism and together with greater financial scope for private households are the main factors demographic growth are boosting driving retail sales growth. Another contributory factor is flourishing tourism, reflected the retail sector in the steady growth in the number of visitors and overnight stays. City breaks are particularly popular, benefiting mainly cities such as Dresden which have excellent tourist attractions. Demand is also being boosted by demographic growth due to the relatively high numbers of immigrants.
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CONSUMER CLIMATE REMAINS STABLE AT A HIGH LEVEL TOURISM IN GERMANY GROWING STEADILY
18 180 500 16 170 475 14 160 450 12 150 425 10 140 400 8 130 375 6 120 350 4 110 325 2 100 300 0 90 275 -2 80 250 -4 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 visitor arrivals in million, annualised GfK consumer climate overnight stays in million, annualised
Source: GfK Source: Federal Statistical Office
The German Retail Federation (HDE) expects retail sales - excluding vehicle trade, Sales growth of 2.5 per cent in 2016 fuel and pharmacies as well as VAT - to grow by 2.5 per cent to around EUR 486bn in is solid but not outstanding 2016. At first glance this is positive growth; however, given the many factors providing stimulus it is certainly not outstanding. Conversely, it follows that retail results will show virtually no growth under less favourable conditions. Such trends are not unusual in the German retail sector, as evident from the prolonged phase of stagnation in the first decade of this millennium.
RELATIVELY STRONG GROWTH IN GERMAN RETAIL SECTOR AGAIN BUT: A SUBSTANTIAL PROPORTION OF RETAIL SALES GROWTH IS IN 2016 ATTRIBUTABLE TO ONLINE ORDERS
retail sales excl. VAT, vehicle sales, service station sales, fuel 500 12 and pharmacy sales 5 500 480 10 4 490 3,4 3 480 460 8 2 1,6 470 2,5 2,5 2,2 440 6 1 1,5 0,9 0,9 0,6 1,1 2,0 1,7 1,2 460 0 450 420 4 -1 -1,4 -1,2 -2,1 440 400 2 -2 -3,1 430 -3 420 380 0 -4 410 -5 400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p E-commerce sales in EUR bn (lhs) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2016p retail sales excl. E-commerce sales in EUR bn (lhs) yoy in % (lhs) in EUR bn (rhs) E-commerce sales in % of total retail sales (rhs)
Source: HDE Source: HDE
Is the boom in prime locations coming to an end? If rates of retail sales growth weaken significantly in future, this would be bad news for Strong growth in E-commerce in-store retail. For a substantial proportion of growth has come from online business in curbing in-store sales growth recent years. Although this segment is still relatively small with total sales of EUR 44bn, it nevertheless continues to show high growth rates. In the last decade E-commerce has grown by an annual average of 11 per cent. Based on this growth rate, retail sales would have to increase by more than one per cent overall for in-store sales to show any growth at all. In other words, relatively strong growth in total retail sales would be necessary for in-store retail to benefit.
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This is particularly true given that inflation already looks set to pick up again this year Inflation is back and this will clearly reduce sales growth in real terms. High growth rates in the retail sector will also be more difficult to achieve because higher inflation will also limit growth in the real incomes of private households.
The steady growth in sales space until a few years ago on the back of more or less Space productivity improves, but stagnating retail sales led to a sharp contraction of sales per square metre of sales not sufficient to regain previously space – or space productivity. Whereas, in 2000, sales per square metre still averaged higher levels EUR 3,900, by 2009 the figure had fallen to only EUR 3,300 – a decline of around 15 per cent. The situation has changed again since 2010: there has been virtually no growth in sales space, while in-store retail sales have increased again. Space productivity has thus increased again to more than EUR 3,500 per square metre. Although this is positive growth compared to the low of 2009, it is still much lower than at the beginning of the new millennium. These are also nominal figures. If account is also taken of inflation - which has raised the price level by more than a quarter since 2000 - the figure looks even more unfavourable.
VIRTUALLY NO MORE EXPANSION OF SALES SPACE SPACE PRODUCTIVITY RISING AGAIN SINCE 2010
130 460 4.000 450 3.900 125 440 3.800 430 3.700 120 420 3.600 410 3.500 115 400 3.400 390 3.300 110 380 3.200 105 370 3.100 360 3.000 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2016p retail sales excl. E-commerce in EUR bn (lhs) German retail space in millon sqm retail sales in EUR per sqm retail space (rhs)
Source: HDE, DZ BANK AG forecasts Source: HDE, DZ BANK AG forecasts
Sales space has also been expanded considerably in the major cities. Population Retail space has been expanded growth in the cities - which has been substantial in some cases - has to some extent considerably slowed, but not halted the growth in per capita sales space. Demographic growth was significant between 2000 and 2016, averaging 9 per cent in the regional centres and 12 per cent in the top locations. However, growth in sales space far exceeds popula- tion growth: in both categories of cities, sales space increased by an average of nearly 50 per cent during this period. Today the top locations have sales space per capita of about 1.7 square metres compared to 1.3 square metres in 2000. The regional centres have 2.1 square metres, compared to only 1.6 at the beginning of the millennium.
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RELATIVE SALES SPACE HAS INCREASED VISIBLY DESPITE STRONG SPACE PRODUCTIVITY IN TOP LOCATIONS HAS GROWN FASTER POPULATION GROWTH THAN IN REGIONAL CENTRES
retail space per capita in sqm retail sales in EUR per sqm 3,5 4.400 2000 2016 4.200 3,0 Regional 12 4.000 2,5 Top 3.800 7 2,0 3.600 3.400 1,5 3.200 1,0 3.000 2.800 0,5 2.600 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Top-7 Regional-12
Source: Feri Source: Feri
Space productivity in the top locations is also significantly higher than in the regional Space productivity in top locations centres as a result of relatively smaller sales space. It has also improved faster in the outperforms regional centres major cities over time. For the average levels recorded in 2000 are clearly being exceeded here today, but have not yet been regained in the regional centres. This is likely to be one of the reasons why prime rents in top locations have increased much more strongly in recent years than in the regional centres.
The more favourable trend in the top locations is associated with much higher Top locations benefit from higher purchasing power there. Half of the 12 regional centres reviewed do not even reach purchasing power the average level of purchasing power throughout Germany, which corresponds to a figure of 100. Conversely, apart from Berlin, levels in some top locations are much higher than this. Germany’s leading shopping location – Munich - attains this peak level, followed at some distance by Düsseldorf. Among the regional centres, the two cities situated in the economically strong Rhine/Main area – Darmstadt and Mainz – show the highest levels.
IN TERMS OF PURCHASING POWER, TOP LOCATIONS OUTPERFORM REGIONAL CENTRES
purchasing power index in points
133
federal average = 100 118 115 113 113 110 106 107 107 108 101 103 104 98 99 95 96 97 93 90 86
Leip- Dres- Berlin Augs- Bre- Mann- Essen Reg- Hann- Karls- Nurem- Mün- Co- Darm- Mainz Ham- Top- Stutt- Frank- Düssel- Mu- zig den burg men heim 12 over ruhe berg ster logne stadt burg 7 gart furt dorf nich
Source: BulwienGesa
12 13 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
The major challenges faced by the retail sector in recent years have been most Prime sites in top locations have successfully overcome by top locations in major cities and city centre shopping performed best centres. This applies particularly to the top locations. However, many city centre loca- tions in regional centres are also successfully holding their own as popular shopping destinations, and are also therefore a focus for retailers opening new branches. The success of the city centres is due to a combination of an attractive retail and food offer and a high quality environment. True, popular online shopping is reducing the sales potential. However, the shortfall can often be made up because products can be purchased both in-store during a shopping trip and also via the stores’ own internet platforms. If these shopping experiences can be successfully linked, positive sales can be achieved and savings can be made on the cost of premises by using smaller storage space and local shops.
PRIME RENTS FOR PREMIUM SITES IN TOP LOCATIONS HAVE SECONDARY LOCATIONS HAVE FAILED TO BENEFIT FROM THE RE- CLEARLY RISEN FASTER THAN IN REGIONAL CENTRES TAIL UPTURN EITHER IN THE TOP 7 OR IN THE REGIONAL CENTRES
prime rent in EUR per sqm retail rent for side locations in EUR per sqm 190 320 16 32
180 300 15 30 170 280 14 28 160 260 13 26 150 240 12 24 140 220 130 200 11 22 120 180 10 20 110 160 9 18
100 140 8 16 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Regional-12 (lhs) Top-7 (rhs) Regional-12 (lhs) Top-7 (rhs)
Source: BulwienGesa Source: BulwienGesa
This formula has proved successful so far, as evident from the continuing high demand Prime rents in top locations for sales space in prime locations and downtown shopping centres. Even retailers who have grown twice as fast as in the initially operated purely on an online basis, now have branches in city centres. Prime regional centres in 10 years rents have increased considerably as a result of high demand – albeit with distinct differences between locations: the growth in prime rents in the top locations has been twice as high – at an average of 46 per cent – in the last ten years as
PRIME RENTS IN REGIONAL CENTRES DIVERGE
59 49 46 42 43 43 43 35 33 32 28 28 23 22 24 21 23 21 14 345 0 297 300 310 -6 275 285 250 250 200 175 145 153 130 130 135 98 108 110 110 114 115
Darm- Essen Dres- Karls- Mainz Augs- Bre- Leip- Reg- Nurem- Mann- Mün- Hann- Co- Stutt- Düs- Ham- Top- Frank- Ber- Mu- stadt den ruhe burg men zig 12 berg heim ster over logne gart sel- burg 7 furt lin nich dorf prime rent 2016 in EUR per sqm growth of the prime rent from 2006 to 2016 in %
Source: BulwienGesa
14 15 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
in the regional centres, where they have increased by 23 per cent. This is the reason for the current wide divergence in rents between EUR 135 per square metre in the regional centres, and an average of close to EUR 300 in the top locations. While prime rents in all the top locations have increased strongly to very strongly, the trend in the regional centres is more heterogeneous: prime rents in Essen have even fallen slightly, while they have maintained their level in Karlsruhe.
The marked divergence in rent growth is due to various factors. These include the Regional centres are “more higher levels of space productivity and purchasing power in the top locations already interchangeable” and the potential discussed, but also their considerably larger numbers of customers with many visitors for rent growth is therefore more from abroad. They therefore act as test markets for new retail concepts which will then limited be launched into the German market on a broader basis. Demand for sales space in prime locations is therefore correspondingly high. Conversely, regional centres tend to be more suitable locations for the subsequent expansion of these new concepts in the German market. However, the fact that they are more interchangeable also militates against stronger rent growth in the regional centres. For, only seven of approximately 80 large German cities with populations of more than 100,000 are designated as “top locations”. While they are often selected as locations for branches, chain stores have more alternatives in other major cities.
However, the steady upward trend in prime rents may have come to an end, or at least Is the upward trend in prime rents in have weakened considerably for the time being in both the top locations and regional top locations over? centres. As discussed at the beginning of this chapter, prime rents have increased in only a small number of locations – as shown in the diagram below – despite the fact that the economic climate and the positive trend in the retail sector would have tended to support continuing rent growth. Why has this happened?
AN UNUSUAL PICTURE FOR RETAIL PROPERTIES: PRIME RENTS IN IN 2017 WE EXPECT ON AVERAGE ONLY MINIMAL GROWTH IN PRIME MANY LOCATIONS DID NOT INCREASE IN 2016 RENTS
prime rent 2016 yoy in % prime rent yoy in % 10
8
3,3 6 2,9 4 2,0 2,0 1,9 1,8 1,5 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,4 2
0 -1,8
-2,0 -2
-4 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e Regional-12 Top-7
Source: BulwienGesa Source: BulwienGesa, DZ BANK AG forecasts
The weaker rent growth is primarily due to a general decline in demand for sales Demand for sales space fell in 2016 space. According to a report by property consultants Jones Lang LaSalle, the volume of rented space last year was down by 7 per cent on 2015. Rental demand has also been more strongly focused on medium-sized premises. The shift between the various sectors is also interesting. Although “textiles” remains by far the largest segment, the proportion has nevertheless declined - possibly as a result of successful online clothing sales. Conversely, food outlets - the second largest demand group - are becoming more important. Demand for city centre premises for fitness centres is also increasing.
14 15 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
However, neither the slight decline in demand for space nor the slower growth in rents Initial retail rental yields falling again has weakened the high level of investor interest in city centre retail properties. Consequently, initial rental yields for properties in both top locations and regional centres have risen again sharply. Last year, the yield divergence between the two categories of location also narrowed slightly to 1.1 percentage points. The divergence reached its widest point of 1.35 percentage points in 2011. Across all locations, the range is just shy of 2 percentage points. The lowest level – where retail properties are most expensive – was in Munich with 3.3 per cent; the highest initial rental yields of 5.2 per cent were achieved in Essen and Mainz in 2016.
DECLINE IN RETAIL YIELDS HALTED AGAIN IN 2016 FROM THE INVESTOR’S PERSPECTIVE, MUNICH IS THE MOST EXPEN- SIVE AND MAINZ THE CHEAPEST
retail: net initial yield (central locations) in % retail: net initial yield (central locations) in % 7,0 5,5 6,5 5,0 5,2 5,2
6,0 5,1
4,5 4,9 4,8 4,8 4,7 4,7 5,5 4,7 4,6 4,6 5,0 4,0 4,2 4,2 4,5 3,5 3,7 3,7 3,7 3,6 3,6 3,6 4,0 3,6 3,0 3,3 3,5 2,5 3,0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Top-7 Regional-12
Source: BulwienGesa Source: BulwienGesa
Summary retail properties and forecast The already high level of rents was one of the factors responsible for the deceleration Online retail makes it more difficult of growth in prime rents last year. Rents ranging from nearly EUR 100 per square to cover costs of already high store metre in Darmstadt to almost EUR 350 in Munich have to be earned first. However, rents this seems to be becoming more difficult due to the growing impact of online trading on city centres. As a result of on-line sales, retailers also tend to need fewer and smaller shop premises. This is reflected in generally lower, as well as changing demand for space. To some extent the decline has been offset by demand for space from supermarkets and drugstore chains, which are increasingly present in city centres. The proportion of food outlets is also growing. And there is also demand from fitness chains, which were rarely situated in the best locations in the past.
The trend we have described is part of a longer-term development: growing Rent growth likely in only individual digitalisation will permanently alter shopping patterns in future. In our view therefore, cases in the retail sector again in 2016 was not simply a weaker year, soon to be followed by an acceleration of rent 2017 growth again. We believe that prime rents are in fact more likely to remain stable in many locations this year. Online shopping is likely to continue to gain ground, and less sales space and smaller shops will consequently be needed for traditional retail activity in cities. Conversely, city-centre food outlet concepts could become even more important. However, the macroeconomic climate is not providing any stimulus for the retail sector either. True, both the economic outlook and the labour market remain solid. However, the likely rise in inflation will also offset growth in the incomes of private households again to a greater extent. The number of international crisis points will also increase, possibly prompting retailers to adopt a more cautious approach.
16 17 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
RETAIL – FORECASTS FOR PRIME RENTS
2015 2016 2017e 12 regional centres Prime rents in EUR/sqm (y-o-y in %) 134.4 (+2.2) 134.9 (+0.4) 135.4 (+0.4) 7 top locations Prime rents in EUR/sqm (y-o-y in %) 292.3 (+3.6) 297.4 (+1.8) 298.5 (+0.4)
Source: BulwienGesa, DZ BANK AG forecasts all averages are space-weighted
Prime rents represent the average of the top 3 to 5 per cent of market rentals, and the stated figure does not therefore correspond to the absolute prime rent.
16 17 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
AUGSBURG
POPULATION GROWTH UNEMPLOYMENT RATE (%)
116 16
14 112 12
10 108 8
104 6
4 100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Augsburg Regional-12 Top-7 Augsburg Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG
Augsburg, which was founded by the Romans, is a popular travel destination with its After a lengthy process of structural town hall, Golden Room and “Fuggerei” (social housing complex). With a population change, things are looking up for of nearly 290,000, it is the third largest city in Bavaria. As a result of extensive Augsburg structural changes the population grew more slowly in the past than in other regional centres in Bavaria. The process of change was driven by the decline of the textile industry, the withdrawal of the American armed forces, and large insolvencies such as Manroland and Walter Bau. However, Augsburg is now experiencing strong demo- graphic growth again, boosted by economic momentum in the city. Important sectors are environmental technology and aerospace, which benefit from the university established in 1970 and other research institutions. The unemployment rate of 5.3 per cent (December 2016) is low for a regional centre, but considerably higher than the overall level in Bavaria. Augsburg’s proximity to the state capital is also an advantage: with its excellent transport links, it provides a good alternative to the expensive location of Munich.
Office space in Augsburg
Together with Darmstadt and Mainz, Augsburg – which has around 1.4 million square Office: smallest location included in metres of office space – is one of the small office locations covered in this report, all market report of which have office space of considerably less than 2 million square metres.
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Augsburg Regional-12 Top-7 Augsburg Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
18 19 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
OFFICE TAKE-UP AS PERCENTAGE OF OFFICE SPACE TREND IN OFFICE SPACE AND EMPLOYMENT
5 120
115 4
110 3 105 2 100
1 95
0 90 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Augsburg Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
For a long time it was difficult to let office space in Augsburg due to the ongoing Expansion as science and structural changes. Ten years ago prime rents were still EUR 9 per square metre. technology location has positive However, thanks to the economic recovery in recent years, the situation has now impact on office market changed permanently. Demand for office space and prime rents have increased sharply. Prime rents have shown the strongest growth of all the locations reviewed, increasing by almost 40 per cent within ten years, although prime rents of EUR 12.50 per square metre are still comparatively cheap – also given the city’s proximity to Munich. One possible reason for this is that the vacancy rate is not particularly low at more than 6 per cent. Together with the manageable level of rents, this could also be attributable to the modest volume of new office space created to date. New developments are generally used by the owners. They are mainly situated outside the fairly small city centre, e.g. the new development and technology centre for robotics company Kuka; this rental agreement increased office space take-up at one stroke from the usual figure of around 20,000 to 36,000 square metres in 2014. Thanks to growing demand as a result of the city’s expansion as a science and technology centre, the development of office projects has however gained pace – particularly at the Augsburg Innovation Centre and Sheridan Park. The latter is an example of how former military premises can be successfully converted. The outdated Lechhausen Nord commercial area is to be expanded and upgraded in future. We expect the upward trend in the Augsburg office market to continue, and this is likely to be reflected in further growth in prime rents.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 3.0 3.3 2.6 2.3 Per capita GDP in EUR 49,961 50,734 51,424 52,170 No. of office workers in '000 50.9 51.9 52.8 53.6 No. of office workers % yoy 2.2 2.0 1.7 1.5 Supply Total office space in sqm '000 1,357 1,370 1,376 1,382 Total office space % yoy 0.2 1.0 0.4 0.5 Vacancy rate % 7.2 6.6 6.3 6.0 Office rents Prime/secondary location EUR/sqm 12.0 / 5.1 12.2 / 5.1 12.5 / 5.1 12.7 / 5.1 Prime/secondary location % yoy 1.7 / 0.0 1.7 / 0.0 2.5 / 0.0 1.8 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecast s yoy= year-on-year
18 19 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Augsburg
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Augsburg Regional-12 Top-7 Augsburg Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecast Source: Feri
Augsburg has more than 3 square metres of retail space per capita - the highest level Retail: large building sites have in this market report. The reason for the large volume of space is its supply function detrimental impact on attractive for a large catchment area of more than 600,000 people. There are no alternative large shopping destination shopping destinations to Augsburg which is situated between Munich and Ulm, resulting in a relatively high centrality value of 125. Conversely, below-average purchasing power in the Fuggerstadt area is a minus point. This is balanced out to some extent by a relatively large number of visitors. There are around 800,000 over- night stays in the city each year. The major building site for the “Augsburg City” urban development project, which will probably not be finished until 2020, is detrimental for the retail sector, since it involves various local transport projects, as well as the complete renovation of the pedestrian zone. The restrained trend in prime rents is therefore unsurprising. Levels in the prime locations of Annastraße and Bürgermeister- Fischer-Straße have recently increased by EUR 5 to EUR 115 per square metre, having remained unchanged for four years. There have been some changes in the Augsburg retail sector in recent years: while Peek & Cloppenburg has invested in the former Woolworth building, Galeria Kaufhof has vacated its building which is now being used by Schuh-Schmid. The Fuggerstadt centre is being renovated after being sold to Activum Capital Management in 2015. It will reopen this year as “Helio”. The outdated Schwabencenter is also to be revitalised by 2018, when it will reopen as the “Forum”. We do not expect prime rents to increase in 2017.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,734 1,749 1,765 1,780 Unemployment rate % 6.7 6.5 6.2 6.3 Retail sales EUR m/% yoy 1,774 / 3.2 1,836 / 3.4 1,881 / 2.5 1,913 / 1.7 Retail sales EUR/sqm sales space 1,959 1,993 2,012 2,025 Supply Retail space in sqm '000 906 921 935 945 Retail space % yoy 0.0 1.7 1.5 1.1 Retail rent Prime/secondary location EUR/sqm 110 / 8.0 115 / 8.0 115 / 8.0 115 / 8.0 Prime/secondary location % yoy 0.0 / 0.0 4.5 / 0.0 0.0 / 0.0 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
20 21 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
BERLIN Office space in Berlin
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Berlin Top-7 Regional-12 Berlin Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
Only ten years ago Berlin was still regarded as a problem child in economic terms. Full steam ahead for the Berlin This has now altered fundamentally; today the capital city is a sought-after location for office market E-commerce providers and fintechs, as well as established companies. Berlin’s attractions as a residential location have supported this trend, making it easier to find skilled workers. Now that its economy has gained momentum – with the steepest decline in unemployment among the top locations for five years – Berlin is likely to attract migration, with its wide range of cultural activities and favourable cost of living for a major city still adding to its attractions as a location. Until recently the city’s rela- tively low office rents were also a plus point. However, prime rents have risen much Prime rents up by more than faster than in the other six top locations, increasing by more than 16 per cent last year 16 per cent in 2016 and by 30 per cent in the last five years. At EUR 28 per square metre, Berlin is now by far the third most expensive office market after Munich and Frankfurt. Space take- up was very high in 2016, as in the previous year, at around 850,000 square metres – more than 40 per cent above the ten-year average. However, it is likely to be difficult to achieve similar rental returns this year. The reduction in the vacancy rate to 3 per Supply shortage could raise cent means that there is a corresponding supply shortage. Prime rents could grow prime rents further again as a result.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 4.5 5.4 3.2 2.6 Per capita GDP in EUR 38,140 39,674 40,667 41,520 No. of office workers in '000 524.2 542.0 556.0 570.0 No. of office workers % yoy 3.4 3.4 2.6 2.5 Supply Total office space in sqm '000 18,737 18,929 18,947 19,050 Total office space % yoy 0.6 1.0 0.1 0.5 Vacancy rate % 5.0 3.8 3.0 2.8 Office rents Prime/secondary location EUR/sqm 23.0 / 8.5 24.0 / 9.5 28.0 / 11.0 28.5 / 11.2 Prime/secondary location % yoy 2.2 / 7.6 4.3 / 11.8 16.7 / 15.8 1.8 / 1.8
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
20 21 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Berlin
PRIME RETAIL RENTS IN EUR PER SQM RETAIL RENTS IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Berlin Top-7 Regional-12 Berlin Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Berlin has performed extremely well as a shopping destination. Interest from investors Retail: Berlin now one of the and retailers is correspondingly high, as reflected in the sharp rise in prime rents. pre-eminent shopping destinations Within five years, Berlin has joined the group of pre-eminent shopping destinations among the top locations among the top locations with rent growth of more than 40 per cent. Only Munich - where current prime rents are EUR 310 per square metre – is more expensive. There are several reasons for this: Germany’s economic power has led to a stronger inter- national focus on its capital city. Other factors are its size, and the importance and internationality of the market in what is by far the most densely populated German city. Berlin therefore acts as a good test market for new retail concepts and is the destination of choice in the German market for top foreign retailers. The handicap of economic weakness is gradually diminishing as a result of the city’s positive economic performance, although the purchasing power of Berliners is still well below that of other top locations. This is balanced out to some extent by the high volume of visitors: among German cities, Berlin - with more than 30 million overnight stays - therefore occupies first place well ahead of Munich. Although retailers still have a high level of interest in Berlin, the upward trend in prime rents is likely to be over for the time being. We expect Rally in rents also likely to be over in a stable trend this year. Hackescher Markt - which is well positioned with its range of Berlin for the time being food outlets and cultural activities, and which may develop further to become a prime location – continues to attract considerable interest. However, the highest rents are in the consumer district of Tauentzienstraße off Ku‘damm.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,737 1,771 1,802 1,829 Unemployment rate % 11.1 10.7 10.3 10.4 Retail sales EUR m/% yoy 17,122 / 4.7 17,785 / 3.9 18,276 / 2.8 18,690 / 2.3 Retail sales EUR/sqm sales space 2,750 2,825 2,867 2,885 Supply Retail space in sqm '000 6,226 6,296 6,375 6,479 Retail space % yoy 2.7 1.1 1.3 1.6 Retail rent Prime/secondary location EUR/sqm 290 / 14.0 300 / 14.5 310 / 14.5 310 / 14.5 Prime/secondary location % yoy 7.4 / 0.0 3.4 / 3.6 3.3 / 0.0 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
22 23 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
BREMEN
POPULATION GROWTH UNEMPLOYMENT RATE (%)
116 16
14 112 12
10 108 8
104 6
4 100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Bremen Regional-12 Top-7 Bremen Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
With a population of nearly 560,000, Bremen has recently been ousted from the list of Economic centre in North West the ten largest German cities by Leipzig. For the population of the Hanseatic city has Germany increased by only 2 per cent in ten years, while Leipzig has grown by 15 per cent. The quality of life in the economic and cultural centre in the North West is high. This is likely to be attributable to the marked structural changes which are still under way. The un- employment rate is high for a large western German city at 9.5 per cent (December 2016). And growth in the number of people employed is flatter than in other regional centres. Bremen’s economic performance has certainly led to success. Particularly in the vehicle construction, aerospace systems, food and beverages, biotechnology and logistics sectors, many companies have opted to base themselves in Bremen. The city’s excellent road and rail links and its seaport and airport are plus points. Its development into a technology location has benefited from alliances with the University of Bremen. Tourism is playing an increasingly important role for the port city, with almost 2 million overnight stays per year.
Office space in Bremen
With 2.6 million square metres, Bremen is one of the smaller office locations based on Virtually no modern office space the size of its population, and this is probably due to the city’s industrial character. in city centre Growth of 17 per cent in the number of office jobs in the last decade is similar to aver-
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Bremen Regional-12 Top-7 Bremen Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
22 23 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
OFFICE SPACE TAKE-UP AS PERCENTAGE OF OFFICE SPACE TREND IN OFFICE SPACE AND OFFICE JOBS
6 125
5 120
4 115
3 110
2 105
1 100
0 95 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Bremen Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
age levels in the regional centres we have reviewed. The 12 per cent expansion of Bremen office market characterised office space has been higher than average, but has failed to keep pace with by stable market activity demographic growth. Modern office space is in short supply, particularly in the city centre, since a large proportion of office buildings are outmoded and no longer meet customer requirements. Most of the new office properties needed by the market have been built in peripheral areas of the city or in the Überseestadt district, where customers can find the attractive office space they are seeking. Office space take-up of 88,000 square metres in 2016 was broadly in line with the ten-year average. Three contracts accounted for a volume of more than 5,000 square metres; in two of these the tenant was Kühne + Nagel, and the third was for Siemens. Apart from six-digit space take-up in 2006 and 2007, rental activity is generally in a range of 70,000 to 90,000 square metres. However, the vacancy rate of currently 4.5 per cent has also remained fairly static, as have prime rents of around EUR 12.50 per square metre since 2008. The Bremen office market has thus defied the widespread and upward trend in rents and is therefore one of the lowest-cost office locations in this report today. We do not expect this to alter significantly this year. Completions are likely to be slightly lower than in the previous year, and the vacancy rate could therefore fall slightly. Prime rents should remain stable, or at best increase slightly.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 2.3 4.2 2.8 2.6 Per capita GDP in EUR 52,763 54,617 55,951 57,267 No. of office workers in '000 100.8 101.5 103.0 104.5 No. of office workers % yoy 1.9 0.7 1.5 1.5 Supply Total office space in sqm '000 2,555 2,577 2,620 2,640 Total office space % yoy 0.7 0.9 1.7 0.8 Vacancy rate % 4.7 4.5 4.5 4.4 Office rents Prime/secondary location EUR/sqm 12.5 / 6.5 12.5 / 6.7 12.5 / 6.7 12.6 / 6.7 Prime/secondary location % yoy -2.7 / 12.1 0.0 / 3.1 0.0 / 0.0 1.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
24 25 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Bremen
PRIME RETAIL RENTS IN EUR PER SQM RETAIL RENTS IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Bremen Regional-12 Top-7 Bremen Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
The fundamental preconditions for retail in Bremen are fairly good, apart from its Retail: peripheral shopping centres below-average purchasing power figure of only 96 points. The city has a large and lack of attractive sales space catchment area as a shopping destination. The only significant competition is the much have negative impact on city centre smaller Oldenburg. The attractive city also draws in large numbers of visitors. This as a shopping destination results in around 2 million overnight stays per year, and a large number of day-trippers. The fact that city centre retail nevertheless continues to lag behind the location’s actual potential, is mainly due to “home-grown” reasons connected with several peripheral shopping centres such as Waterfront, the Roland-Center and Weserpark. Bremen city centre thus accounts for a well below-average 20 per cent of total retail activity. The city centre also has a shortage of attractive sales space, and store chains in need of large business premises therefore struggle to find them. On the other hand, some individual vacant properties can be found in prime Bremen locations based on unrealistically priced rents. Sensible space expansion in the city centre could have been achieved with the planned “City Center”, for which purpose the city had already acquired the Lloydhof. However, the project failed as a result of the withdrawal of centre developer Sonae Sierra. The city now plans to sell the Lloydhof again. An investor is being sought to realise a “21st century business” on the premises. We do not expect prime rents - which, at EUR 130 per square metre, are only two thirds of the level in Hanover - to alter this year.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,939 1,982 2,019 2,051 Unemployment rate % 10.1 10.0 9.7 9.8 Retail sales EUR m/% yoy 2,576 / 3.8 2,674 / 3.8 2,766 / 3.4 2,849 / 3.0 Retail sales EUR/sqm sales space 1,703 1,743 1,784 1,811 Supply Retail space in sqm '000 1,513 1,534 1,550 1,573 Retail space % yoy 3.1 1.4 1.1 1.4 Retail rent Prime/secondary location EUR/sqm 125 / 10.0 130 / 10.0 130 / 10.0 130 / 10.0 Prime/secondary location % yoy 0.0 / 0.0 4.0 / 0.0 0.0 / 0.0 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
24 25 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
COLOGNE
Office space in Cologne
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Cologne Top-7 Regional-12 Cologne Top-7 Regional-12
Source: BulwienGesa, Prognose DZ BANK AG Source: BulwienGesa, Prognose DZ BANK AG
In 2016, the Cologne office market beat even the very strong previous year with a 2016 a record year for Cologne record result. A take-up of 335,000 against 285,000 square metres beat the previous office market record from 2006 by 10 per cent and the 10-year average by almost 30 per cent. This was helped by four big transactions: public administration accounted for three deals and a total of 45,000 square metres. The fourth deal of 60,000 square metres involves Zurich Insurance's new headquarters in the trade fair complex (MesseCity). The latter underlines the fact that a similar take-up will not be repeated in a hurry. In addition, it is becoming more difficult to achieve high take-ups because supply in Cologne has dwindled further, as it has in other top locations. The vacancy rate has fallen by almost one half of a percentage point to 5.6 per cent. As such, it has done much better than in Düsseldorf since the two cities were roughly neck-and-neck in terms of vacancy rate ten years ago with a level just under the two-digit bracket. However, this does not apply to prime rents which have been stagnating at EUR 21 since 2013. As such, they are not only much lower than in the state capital, but have also risen much slower in the Vacancy rate falls to under last few years. In view of a further rise in office employment, demand for office space 6 per cent, but prime rents is likely to remain lively and the vacancy rate should fall further. On this basis, prime stagnating rents could increase again in 2017.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 4.3 2.3 2.9 2.7 Per capita GDP in EUR 58,851 59,769 61,146 62,459 No. of office workers in '000 230.1 234.9 239.5 244.0 No. of office workers % yoy 2.2 2.1 2.0 1.9 Supply Total office space in sqm '000 7,486 7,527 7,582 7,610 Total office space % yoy -0.4 0.5 0.7 0.4 Vacancy rate % 7.1 6.0 5.6 5.3 Office rents Prime/secondary location EUR/sqm 21.0 / 8.1 21.0 / 8.0 21.0 / 8.3 21.3 / 8.4 Prime/secondary location % yoy -0.5 / 1.3 0.0 / -1.2 0.0 / 3.8 1.5 / 1.2
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
26 27 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Cologne
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 7.000
280 6.000 240 5.000 200 4.000 160 3.000 120 2.000 80
40 1.000
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Cologne Top-7 Regional-12 Cologne Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
The million-strong city of Cologne is the second most important shopping location in Strong retail location in west Germany with a clear emphasis on the mass market. This is especially true of West Germany the Schildergasse with its high footfall and where chain stores account for almost 90 per cent of retailers. In addition, Cologne has trendy locations, which stand out from the typical retailer mix found in prime locations. Unlike in Düsseldorf, the luxury end found around the Domkloster/Wallraffplatz, only has a small presence. Cologne could get an upgrade in this segment in future through the remodelling of the former Dom Hotel which has just begun, and which is to be developed as a luxury shopping mall. In addition, there are plans to upgrade the area around the cathedral and main station. The Breslauer Platz on the side of the main railway station away from the cathedral is to be remodelled. Cologne's attraction for retailers is undimmed, helped by a conurbation of three million inhabitants. Purchasing power is not quite so good in Cologne though, but it is boosted by many tourists and trade-fair visitors. There were around 6 million overnight stays in Cologne in 2015. The city centre scores highly through a three-kilometre long shopping circuit of prime locations and offers a high- quality experience for visitors. In the last five years, prime rents have risen by 11 per cent, not even half as fast as the average for the top 7. This is likely to reflect a fairly good supply of retail space in sought-after locations and the proximity to Düsseldorf. Prime rents likely to remain stable Prime rents are likely to move sideways in 2017.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,938 1,982 2,019 2,050 Unemployment rate % 9.6 9.4 9.1 9.2 Retail sales EUR m/% yoy 7,710 / 5.1 8,025 / 4.1 8,272 / 3.1 8,484 / 2.6 Retail sales EUR/sqm sales space 5,512 5,692 5,854 5,976 Supply Retail space in sqm '000 1,399 1,410 1,413 1,420 Retail space % yoy 0.0 0.8 0.2 0.4 Retail rent Prime/secondary location EUR/sqm 240 / 13.5 250 / 15.0 250 / 15.0 251 / 15.0 Prime/secondary location % yoy 0.0 / 8.0 4.2 / 11.1 0.0 / 0.0 0.5 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
26 27 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
DARMSTADT
POPULATION GROWTH UNEMPLOYMENT RATE (%)
116 16
14 112 12
10 108 8
104 6
4 100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Darmstadt Regional-12 Top-7 Darmstadt Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
Darmstadt - the smallest city covered in this report with a population of 155,000 – is The “city of science” is an important one of the vibrant cities which are attracting large numbers of young professionals. economic and research location in The fact that the “city of science” has developed into an important science and the Rhine-Main region research location on the southern edge of the Rhine-Main region has contributed to this. The core sectors are IT, chemicals/pharmaceuticals, mechanical engineering and cosmetics with a number of important companies. The largest is the chemical and pharmaceuticals manufacturer Merck. However, other important contenders are the mechanical engineering company Carl Schenck, the speciality chemicals company Evonik/Röhm, Kao Germany (Goldwell), Software AG and Telekom. In 2016 Wella returned to Darmstadt with a workforce of 1,000. Many start-ups are based in the technology and innovation centre of the Technical University. A total of more than 30,000 students attend the TU and other higher education colleges. Various research institutions are also based in Darmstadt, for example the aerospace control centre ESOC and the “FAIR” particle accelerator facility which is under construction. The unemployment rate of 5.8 per cent (December 2016) is low for a major city.
Office space in Darmstadt
Based on its economic importance and the large number of scientific institutions, Darmstadt has a relatively large vol- Darmstadt has more office space – of 1.6 million square metres – than Augsburg ume of office space
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Darmstadt Regional-12 Top-7 Darmstadt Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
28 29 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
OFFICE SPACE TAKE-UP AS PERCENTAGE OF OFFICE SPACE TREND IN OFFICE SPACE AND OFFICE JOBS
8 135
7 130
6 125
5 120
4 115
3 110
2 105
1 100
0 95 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Darmstadt Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
whose population is almost twice as large. Demand for office jobs has led to strong Expansion of office space has not expansion of 15 per cent in office space in the last ten years. The number of office led to overcapacity jobs has grown slightly more strongly by 17 per cent. No overcapacity has therefore been created: the vacancy rate fell below the level of 5 per cent in 2012 since when it has remained at around 4.5 per cent. Office space take-up usually reaches around 40,000 square metres in a year. This was also the case in 2016. Higher sales of more than 50,000 square metres in previous years are mainly attributable to large individual contracts. For example, office space of around 19,000 square metres was rented by Telekom in 2013, and 20,000 square metres by Wella in 2015. Conversely, the largest rental contract in 2016 was significantly smaller at 8,000 square metres – the tenant is Alnatura. Prime rents have remained at around EUR 13 per square metre since 2012. However, this is already a comparatively high level relative to the size of the location. The potential for significant rent increases is therefore moderate despite the positive outlook for the location. For, in contrast to neighbouring Frankfurt, where available space for residential and commercial purposes is in short supply, thanks to the conversion of former military space Darmstadt has substantial reserves of space: while the Lincoln Family Housing Area will be used for residential accommodation, the Conversion provides scope for Kelley barracks and the Nathan Hale Depot are earmarked for commercial use. A large further growth office project – Hello Darmstadt – is currently being realised in the Europe quarter, and the main tenant is TÜV Hessen.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 4.8 4.0 2.8 2.6 Per capita GDP in EUR 75,317 77,308 78,778 80,179 No. of office workers in '000 50.2 50.1 50.8 51.6 No. of office workers % yoy 1.6 -0.1 1.3 1.6 Supply Total office space in sqm '000 1,585 1,587 1,603 1,610 Total office space % yoy 1.9 0.1 1.0 0.5 Vacancy rate % 4.4 4.5 4.6 4.5 Office rents Prime/secondary location EUR/sqm 13.0 / 7.5 13.0 / 7.5 13.1 / 7.5 13.3 / 7.5 Prime/secondary location % yoy 0.0 / 0.0 0.0 / 0.0 0.8 / 0.0 1.5 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
28 29 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Darmstadt
PRIME RETAIL RENTS IN EUR PER SQM RETAIL RENTS IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Darmstadt Regional-12 Top-7 Darmstadt Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
The conditions for retail in Darmstadt are in fact fairly good: demographic growth is Darmstadt is well placed as a strong, unemployment is low, the purchasing power figure of around 107 points for this shopping destination in the south economically strong city is one of the highest among the regional centres, and the of the Rhine-Main region catchment area to the south of Darmstadt has a population of more than 600,000. The city centre is also an attractive shopping destination with a broad offer, good provision of food outlets, and short distances. The two prime locations of Schuchardstraße and Ernst-Ludwig-Straße are enhanced by two city centre shopping centres, the Luisen Center and the City Carree, as well as the Market Hall which reopened at the end of 2015 after renovation. Another renovation project is in progress to upgrade the Wil- helminenpassage, and this is due for completion in mid-2017. Interest from retailers is relatively high, although rental contracts are hampered by a low fluctuation level in the city centre. Despite the favourable conditions, premium rents have not risen above EUR 100 per square metre. Last year the figure even fell to EUR 98. Two main negative factors are responsible for this; firstly, Frankfurt, with its broad range of shopping opportunities, is only 30 kilometres away. And secondly, the Loop 5 shopping centre which opened outside the city gates in 2009, but which is facing problems. While prime rents in Darmstadt city centre are stagnating, footfall in the shopping centre on the periphery is not high enough, as reflected in the growing vacancy rate there. In our view, prime rents in Darmstadt city centre could at best return to their 2015 level.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,947 1,984 2,016 2,042 Unemployment rate % 6.7 6.4 6.2 6.3 Retail sales EUR m/% yoy 1,075 / 3.2 1,116 / 3.8 1,150 / 3.1 1,175 / 2.2 Retail sales EUR/sqm sales space 2,825 2,924 3,006 3,055 Supply Retail space in sqm '000 380 382 383 385 Retail space % yoy 2.2 0.3 0.2 0.5 Retail rent Prime/secondary location EUR/sqm 100 / 11.0 100 / 11.0 98 / 11.0 99 / 11.0 Prime/secondary location % yoy 0.0 / 0.0 0.0 / 0.0 -2.0 / -4.5 1.0 / 4.8
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
30 31 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
DRESDEN
POPULATION GROWTH UNEMPLOYMENT RATE (%)
18 116 16 14 112 12
108 10 8 104 6 4 100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Dresden Regional-12 Top-7 Dresden Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
With a population of 540,000, Dresden is the third largest city in East Germany after Capital of Saxony has developed Berlin and Leipzig. The capital of Saxony has developed very successfully after very successfully reunification. This is reflected in its strong population growth of currently just over 1 per cent annually. Thanks to its architecture and various cultural treasures, the city has become a “hotspot” for city tourism. However, it has also fared well economically: the unemployment rate has fallen to a gratifyingly low 6.7 per cent (December 2016), which is much lower than in large western German cities such as Bremen, Essen and Hannover. Based on the many administrative functions located there, the public sector is an important employer. The university and a number of research institutions also create many jobs. The designation “Silicon Saxony” refers to the large number of companies and research institutions in the high tech sector. A total of 40,000 people are employed in IT and communications technology. Many companies from the vehicle construction, aviation and pharmaceutical sectors are also contributing to the dynamic development of the local economy.
Office properties in Dresden
With 2.6 million square metres of office space, Dresden is the third largest office Major impact of post-reunification market in eastern Germany. During the construction boom of the 1990s, office space boom on office market
OFFICE SPACE TAKE-UP AS PERCENTAGE OF OFFICE SPACE TREND IN OFFICE SPACE AND OFFICE JOBS
30 14 27 12 24 21 10 18 8 15 12 6
9 4 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Dresden Regional-12 Top-7 Dresden Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
30 31 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
OFFICE SPACE TAKE-UP AS PERCENTAGE OF OFFICE SPACE TREND IN OFFICE SPACE AND OFFICE JOBS
6 125
5 120
4 115
3 110
2 105
1 100
0 95 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Dresden Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
was expanded well above actual demand. The vacancy rate therefore increased to Prime rents gradually approaching almost 20 per cent towards the end of the 1990s. As a consequence of the high EUR 13 per square metre vacancy rate, only a modest amount of new office space was developed, while the number of jobs grew strongly. The supply overhang was therefore reduced gradually over time. In 2016, 8.6 per cent of office space was still unoccupied. This is still a fairly high level compared to the other regional centres reviewed; only in Leipzig is the va- cancy rate higher. The generous supply of space and intermittently subdued demand caused prime rents to slip below EUR 10 per square metre in the middle of the last decade. Since then they have risen steadily by around 30 per cent to currently EUR 12.60 per square metre. Office space take-up has been relatively high and stable at around 80,000 to 90,000 square metres since 2009. The initially high, but subsequently modest level of construction activity after reunification had an impact on the supply of space: one third of office buildings were built before 1990; this proportion is generally twice as high. Conversely, nearly 60 per cent of office properties were built between 1990 and 1999 and are thus more than 20 years old. The usual proportion in this age category is around 20 per cent. In contrast, virtually no office space has been created since the millennium. The proportion is less than 10 per cent, half of the usual level. Modern office space is therefore in fairly short supply as a result of the steady Modest supply of modern reduction in the vacancy rate – despite the generally fairly high vacancy rate. If office space demand for space remains robust, prime rents could pick up again moderately.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 3.7 3.8 3.1 2.9 Per capita GDP in EUR 38,341 39,450 40,390 41,325 No. of office workers in '000 99.9 101.1 102.8 104.3 No. of office workers % yoy 1.7 1.2 1.7 1.5 Supply Total office space in sqm '000 2,684 2,638 2,631 2,625 Total office space % yoy -0.8 -1.7 -0.3 -0.2 Vacancy rate % 9.6 8.6 8.4 8.1 Office rents Prime/secondary location EUR/sqm 12.1 / 5.0 12.3 / 5.4 12.6 / 5.5 12.8 / 5.5 Prime/secondary location % yoy 1.7 / 2.0 1.7 / 8.0 2.4 / 1.9 1.6 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
32 33 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Dresden
PRIME RETAIL RENTS IN EUR PER SQM RETAIL RENTS IN EUR PER SQM
350 5.000
300 4.000 250
200 3.000
150 2.000 100 1.000 50
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Dresden Regional-12 Top-7 Dresden Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Dresden, Berlin and Leipzig form the trio of top shopping destinations in eastern Retail: Top German shopping Germany. The catchment area of the capital of Saxony has a population of 1.2 million. location in eastern Germany with However, Saxony is well placed with two top-class shopping destinations, and a relatively low prime rents certain amount of competitive pressure comes from Leipzig which is more than 100 kilometres away. The centrality figure - which is not overly high at 109 - also supports this view. This could be one of the reasons for the relatively low prime rents of EUR 110 per square metre, which have remained static since 2014. However, the cumulative rent growth of 22 per cent over ten years is above-average. Continuing weak purchasing power in eastern Germany continues to act as a dampener. Conversely, the large number of tourists is positive: with 4.3 million overnight stays, Dresden ranks seventh among German cities. On the one hand, its city centre shopping centres - the Altmarkt Galerie with around 200 retail units, and the renovated Centrum Galerie - attract many shoppers into the city centre; however, with their large supply of sales space, they also have a braking effect on prime rents in prime locations such as the “consumer-oriented” Prager Straße. The beginning of the street at the railway station has been significantly upgraded by the “PRAGER CARRÉE” which opened at the end of 2016. The Neumarkt tourist area geared to the premium segment is benefiting from various new developments which are integrated into the historic ensemble. Dresden should continue to develop positively this year as a shopping destination, and should remain in demand with retailers. In our view, prime rents are however more likely to remain stable than to increase moderately.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,626 1,663 1,695 1,723 Unemployment rate % 8.4 7.9 7.7 7.7 Retail sales EUR m/% yoy 2,392 / 3.6 2,469 / 3.2 2,539 / 2.8 2,599 / 2.4 Retail sales EUR/sqm sales space 2,313 2,376 2,421 2,451 Supply Retail space in sqm '000 1,034 1,039 1,049 1,061 Retail space % yoy 0.3 0.5 1.0 1.1 Retail rent Prime/secondary location EUR/sqm 110 / 9.0 110 / 9.0 110 / 9.0 110 / 9.0 Prime/secondary location % yoy 4.8 / 0.0 0.0 / 0.0 0.0 / 0.0 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
32 33 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
DÜSSELDORF Office space in Düsseldorf
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 14 27 12 24 21 10 18 8 15 6 12
9 4 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Düsseldorf Top-7 Regional-12 Düsseldorf Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
The Düsseldorf office market did not maintain the strong result of the previous year in Vacancy rate in Düsseldorf office 2016. Space take-up fell by around a quarter to 308,000 square metres, which was market has clearly fallen around 6 per cent below the ten-year benchmark figure. The reason for the decline in rented space is the lack of large rental contracts of more than 10,000 square metres – of which there were still quite a number in 2015. In 2016, the two largest contracts – for perfumery Douglas and the Stepstone job agency – were for only about 8,500 square metres respectively. Apart from this, last year can be described as suc- cessful for the Düsseldorf job market. While prime rents increased by 2 per cent to EUR 24.50 per square metre, the vacancy rate declined sharply by about half a percentage point to just over 8 per cent. The double-digit vacancy rates which were a frequent feature of the so-called “writing desk of the Ruhr area” for many years, are thus a thing of the past. The supply of top-class office space is also contracting, particularly since new space amounted to only about 40,000 square metres last year. The volume of new space should be higher in 2017 at around 80,000 square metres, but will still be insufficient to meet continuing buoyant demand. We also therefore expect vacancy rates to fall further this year. Given the continuing positive trend in employment, prime rents could also pick up again slightly, reaching EUR 25 per square metre again, as in 2013.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 4,5 2,5 3,0 2,8 Per capita GDP in EUR 80,789 82,004 83,999 86,030 No. of office workers in '000 195.4 202.6 206.0 209.0 No. of office workers % yoy 0.7 3.7 1.7 1.5 Supply Total office space in sqm '000 7,550 7,554 7,635 7,700 Total office space % yoy 0.6 0.1 1.1 0.9 Vacancy rate % 10.5 8.8 8.3 8.0 Office rents Prime/secondary location EUR/sqm 24.0 / 9.5 24.0 / 10.0 24.5 / 10.3 25.0 / 10.3 Prime/secondary location % yoy -4.0 / 2.2 0.0 / 5.3 2.1 / 3.0 2.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
34 35 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Düsseldorf
PRIME RETAIL RENTS IN EUR PER SQM RETAIL RENTS IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Düsseldorf Top-7 Regional-12 Düsseldorf Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Düsseldorf plays an important role in the premiere league of German shopping Extensive upgrading of destinations. Demand from retailers for space is correspondingly high. The reasons Düsseldorf city centre likely to for this are the large catchment area of two million people and high purchasing power, continue until 2019 exceeded among the top 7 contenders only by Munich. The “Kö” luxury shopping street is also internationally famous. For a long time the city centre has been in a state of upheaval, with many urban development initiatives having been carried out. Added to this is the development of new, and the renovation of existing retail properties. The latter include the Kö-Galerie, the Sevens and the Kö-Karree. The Kaufhof branch will be the first in Germany to be redeveloped by its new owner Hudson´s Bay. One of the new developments is the Kö-Bogen designed by Daniel Libeskind which opened at the end of 2013. The range of shopping on offer will also be extended to include other attractive sales space by 2019 with Kö-Bogen II. The project has been delayed due to discussions about building development but the outstanding issues were clarified in autumn 2016. The transformation of the pedestrian zone in Schadowstraße is also now proceeding. One positive feature is that since spring 2016 the prime consumer location has been connected to the U-Bahn network. If all the building work is actually completed in 2019, Düsseldorf city centre will have survived more than a decade of permanent building work resulting in a major upgrade. The future prospects for the shopping destination are correspondingly positive. Prime rents, which increased from EUR 270 to 275 in 2016, are also likely to remain largely stable due to ongoing building work.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 2,259 2,312 2,359 2,399 Unemployment rate % 8.8 8.5 8.2 8.3 Retail sales EUR m/% yoy 4,951 / 5.6 5,166 / 4.3 5,335 / 3.3 5,480 / 2.7 Retail sales EUR/sqm sales space 4,022 4,202 4,302 4,403 Supply Retail space in sqm '000 1,231 1,229 1,240 1244 Retail space % yoy 0.3 -0.1 0.9 0.3 Retail rent Prime/secondary location EUR/sqm 260 / 14.0 270 / 16.0 275 / 16.0 276 / 16.0 Prime/secondary location % yoy 8.3 / 0.0 3.8 / 14.3 1.9 / 0.0 0.5 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
34 35 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
ESSEN
POPULATION GROWTH UNEMPLOYMENT RATE (%)
116 18 16 112 14
108 12 10 104 8
100 6 4 96 2
92 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Essen Regional-12 Top-7 Essen Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
With a population of 580,000, Essen ranks ninth among the largest German cities. The Essen’s population growing again decline of the coal and steel industries has however had a very negative impact on the after contracting sharply importance of the capital of the Ruhr region: in the era of the economic miracle it had a population of up to 730,000. But the population of Essen has now stopped shrinking and the number of people who live there is growing again, partly due to successful structural change. The only reminders now of a bygone era are industrial monuments, such as the Zeche Zollverein coal mine industrial complex which closed in 1986. Conversely, the economic focus has shifted to services and administration. Today the group headquarters of various important companies such as Aldi, Deichmann, E.ON- Ruhrgas, Evonik, Funke Mediengruppe (formerly WAZ), HOCHTIEF, Karstadt, RWE, Schenker, STEAG and ThyssenKrupp are located in the Krupp city. The trade fair has become another pillar of Essen’s economy. One large employer is the University of Duisburg-Essen which has more than 40,000 students. The consequences of earlier job losses are still clearly visible in the labour market. Essen has one of the highest unemployment rates among the cities reviewed here, at 11.7 per cent (December 2016).
Office space in Essen
With 3 million square metres, Essen has considerably less office space than Office: Essen is the largest office regional centres of a similar size such as Hannover or Nuremberg. The reason for this market in the Ruhr region
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Essen Regional-12 Top-7 Essen Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
36 37 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
OFFICE SPACE TAKE-UP IN PER CENT FOR OFFICE SPACE TREND IN OFFICE SPACE AND OFFICE JOBS
6 120
5 115
4 110
3 105
2 100
1 95
0 90 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Essen Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
is the city’s formerly dominant industrial character. However, the volume of office A number of large office projects will space easily meets the level of demand in the office market. The vacancy rate in Essen probably be completed in 2017 is moderate at 5 per cent. Available contemporary office space is however clearly in short supply. For the Essen office market has performed well in recent years. By 2013, prime rents had risen sharply to EUR 14 per square metre, but have since stagnated at this slightly above-average level. There was good news for the office location in 2015: following the break-up of E.ON, the company’s renewable energies segment is to be relocated from Düsseldorf to Essen. The chemicals trader Brenntag plans a similar move from its previous headquarters in Mülheim. Thanks to these supporting factors, space take-up reached a good, if not extremely high level in 2015. However, no large contracts of more than 10,000 square metres were realised in 2016, and space take-up of 85,000 square metres therefore lagged behind usual volumes by about a quarter. This year is likely to be interesting. For, due to many large-scale completions, the volume of new space will be roughly four times the usual level; this will include new builds for Brenntag and the Funke media group, a new office building in the Europa-Center, the new build of the Folkwang-Uni on the Zollverein campus, and the renovated Rheinstahl House, now known as the Fakt Tower. We forecast a temporary increase in the vacancy rate to 6 per cent, with prime rents remaining stable due to the meagre supply of modern space.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 4.0 2.3 2.9 2.7 Per capita GDP in EUR 50,692 51,303 52,550 53,872 No. of office workers in '000 97.9 100.0 101.8 103.6 No. of office workers % yoy 2.5 2.2 1.8 1.8 Supply Total office space in sqm '000 2,982 2,983 2,993 3,050 Total office space % yoy 1.0 0.0 0.3 1.9 Vacancy rate % 4.7 5.0 5.4 6.1 Office rents Prime/secondary location EUR/sqm 14.0 / 6.0 14.0 / 6.2 14.0 / 6.1 14.0 / 6.2 Prime/secondary location % yoy 0.0 / 0.0 0.0 / 3.3 0.0 / -1.6 0.0 / 1.6
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
36 37 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Essen
PRIME RETAIL RENTS IN EUR PER SQM RETAIL RENTS IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Essen Regional-12 Top-7 Essen Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
“Essen – the shopping city”: the city’s neon advertising sign harks back to its formerly Retail: Retail centre of Essen leading role in the retail sector in the Ruhr region. However, the growth in unemploy- recovering, but prime rents remain ment caused by structural change, and growing competition from nearby cities – below-average particularly Düsseldorf, Dortmund and CentrO in Oberhausen – are making life difficult for Essen’s retailers. The impact is evident from the trend in prime rents, which are currently down by one quarter on levels reported at the millennium. Last year the figure fell to EUR 108 per square metre, having recovered intermittently to EUR 110. For Essen has regained the ground it lost as a shopping destination in recent years. This is mainly attributable to the large city centre shopping centre at Limbecker Platz which opened in 2009. However, the expansion of the sales space by 70,000 square metres has also acted as a drag on prime rents, which have consequently fallen to EUR 100 per square metre. Added to this is the renovation of the RATHAUS GALERIE in 2010, and the rebuilding of the store at Kettwiger Tor in 2013. In addition to the two prime locations of Limbecker and Kettwiger Straße, the city centre thus has three modern shopping centres. Overall, developments have prompted retailers seeking space to focus currently on Limbecker Straße rather than Kettwiger Straße. However, Essen’s growing attractions are not sufficient to raise prime rents towards the usual levels in cities of a similar size. Overpriced rents are thus partly responsible for the vacancy rate in prime retail locations in Essen. If things go well, prime rents could this year move back towards the figure of EUR 110 per square metre reported up to 2015.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,839 1,880 1,916 1,948 Unemployment rate % 12.4 12.1 11.7 11.9 Retail sales EUR m/% yoy 3,555 / 3.2 3,675 / 3.4 3,768 / 2.5 3,846 / 2.1 Retail sales EUR/sqm sales space 4,183 4,307 4,365 4,425 Supply Retail space in sqm '000 850 853 863 869 Retail space % yoy 0.2 0.4 1.2 0.7 Retail rent Prime/secondary location EUR/sqm 110 / 12.0 110 / 11.5 108 / 11.5 109 / 11.5 Prime/secondary location % yoy 0.0 / 0.0 0.0 / -4.2 -1.8 / 4.3 0.9 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
38 39 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
FRANKFURT
Office space in Frankfurt
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
40 21 36 18 32 28 15 24 12 20 9 16
12 6 8 3 4 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Frankfurt Top-7 Regional-12 Frankfurt Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
After two poor years, the most expensive office market in Germany has picked up In spite of weakened banking sector, again slightly. At around 460,000 square metres, take-up returned to an above aver- office market picking up again age level. The biggest deals involved Deutsche Bahn and the ECB at 45,000 and 18,000 square metres respectively. However, the Brexit vote in the UK has not yet had a positive impact, which does not come as any surprise: The vague picture so far of future ties to the EU single market is making it difficult for banks to make the decision to move staff to the European mainland. In addition, two trends characterise the Frankfurt market: positive economic conditions with job growth in the financial sector are being counterbalanced by regulation, low interest rates and digitalisation. Nevertheless, the vacancy rate has fallen, not least because access to space was moderate. However, it is still in two-digits at 10.7 per cent, which is making it difficult for prime rents to increase beyond the current level of EUR 35.50 per square metre. We expect a further reduction in the vacancy rate in 2017, but prime rents are only likely to rise if Brexit leads to a marked increase in demand for space. In this context, one point in Frankfurt's favour is that UBS has decided to move its European-wide wealth management to Frankfurt. Another positive factor is that Zurich Insurance is Brexit an opportunity: UK bankers planning to combine its offices in the Rhine-Main area into a single site in the Pollux could bring about rising demand for Turm in the Messe area in 2018. Bundesbank will also need temporary offices for over office space in Frankfurt 2,000 people from 2019 when it undertakes a complete refurbishment of its premises.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 4.7 4.5 3.0 2.8 Per capita GDP in EUR 100,537 102,789 104,355 105,994 No. of office workers in '000 277.2 284.1 288.0 296.0 No. of office workers % yoy 1.8 2.5 1.4 2.8 Supply Total office space in sqm '000 10,351 10,305 10,320 10,400 Total office space % yoy 0.8 -0.4 0.1 0.8 Vacancy rate % 12.1 11.3 10.7 10.2 Office rents Prime/secondary location EUR/sqm 35.0 / 9.4 35.5 / 9.5 35.5 / 9.5 36.6 / 9.5 Prime/secondary location % yoy 0.0 / 0.0 1.4 / 1.1 0.0 / 0.0 3.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
38 39 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Frankfurt
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Frankfurt Top-7 Regional-12 Frankfurt Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Frankfurt is one of the strongest locations in the German retail sector: the catchment Frankfurt growing and attracting area in the flourishing Rhine-Main area numbers some 2.3 million people, who have a retailers and investors in equal high purchasing power. In addition, there are a growing number of inhabitants, workers measure and visitors. As a result of Brexit, London bankers and their families could mean further potential for the city. The city counts 8.7 million overnight stays p.a. and therefore ranks in fourth place in Germany. Frankfurt's attractiveness means steady interest for city-centre retail space, and consequently, new space, such as the Skyline Plaza, which came onto the market in 2013 near the exhibition centre was absorbed without any problem. However, footfall there still leaves to be desired. There are also signs of saturation in the prime rents which could not increase any further in 2016 after climbing to EUR 300 per square metre the previous year. Frankfurt has therefore lost its place as the second most expensive shopping location in Germany to Berlin. Major construction projects are currently underway in the Zeil shopping district: firstly, the new UpperZeil on the site of the Zeilgalerie which has now been pulled down. From 2018, neighbouring Kaufhof will be able to expand its sales space above ground floor level by almost 11,000 square metres. The second project is the revamp of the MyZeil shopping centre which first opened in 2009, which is to be upgraded with a new res- taurant area and an exclusive programme-cinema. Outside the city, the Hessen-Cen- ter on the eastern edge of the city will get a facelift this year and grow by 14,000 square Any potential for further rise in metres. While the supply of sales space is growing, the scope for prime rents to rise prime rents exhausted any further is likely to be exhausted for the time being.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,887 1,913 1,934 1,954 Unemployment rate % 7.3 6.8 6.6 6.7 Retail sales EUR m/% yoy 5,665 / 4.8 5,882 / 3.8 6,077 / 3.3 6,245 / 2.8 Retail sales EUR/sqm sales space 3,783 3,915 4,001 4,085 Supply Retail space in sqm '000 1,498 1,503 1,519 1,529 Retail space % yoy 0.5 0.3 1.1 0.6 Retail rent Prime/secondary location EUR/sqm 290 / 18.0 300 / 18.0 300 / 18.0 300 / 18.0 Prime/secondary location % yoy 3.6 / 0.0 3.4 / 0.0 0.0 / -2.8 0.0 / 2.9
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
40 41 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
HAMBURG
Office space in Hamburg
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Hamburg Top-7 Regional-12 Hamburg Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
Hamburg's office market put in a stellar performance in 2016 with take-up of Third largest office market in 550,000 square metres – 12 per cent higher than the ten-year average! This was well Germany based on space stands above the previous-year figure of around 20,000 square metres although the added out through its stability volume of major deals of over 10,000 square metres fell from almost 140,000 to 60,000 square metres. Accordingly, letting activity in the smaller categories has in- creased. The tenants behind the four big transactions are Olympus, Nordex, KPMG and the Kassenärztliche Vereinigung. In spite of a large amount of new space, which was about 100,000 square metres above the typical level at 275,000 square metres, the vacancy rate fell slightly to 5.3 per cent. These good conditions helped prime rents: they rose by 4 per cent to EUR 26 per square metre. But the increase of 11 per cent over five years is rather modest. This is likely to reflect a substantial increase in space in the HafenCity. The positive trend in the Hamburg office market is driven by a widely diversified economy and this is likely to continue this year. Since less than 100,000 square metres of new office space expected to come onto the market, the decline in the vacancy rate is set to continue. Consequently, after the strong growth in the past year prime rents should show stable development in the current year in our view.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 2.9 3.8 4.0 2.9 Per capita GDP in EUR 67,043 68,741 70,924 72,552 No. of office workers in '000 411.8 418.8 426.0 433.0 No. of office workers % yoy 1.9 1.7 1.7 1.6 Supply Total office space in sqm '000 13,554 13,575 13,724 13,800 Total office space % yoy 0.1 0.2 1.1 0.6 Vacancy rate % 5.9 5.5 5.3 5.0 Office rents Prime/secondary location EUR/sqm 24.5 / 9.7 25.0 / 10.5 26.0 / 11.8 26.0 / 12.0 Prime/secondary location % yoy 2.1 / 2.1 2.0 / 8.2 4.0 / 12.4 0.0 / 1.7
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
40 41 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Hamburg
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 7.000
280 6.000 240 5.000 200 4.000 160 3.000 120 2.000 80
40 1.000
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Hamburg Top-7 Regional-12 Hamburg Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
The leading shopping location in northern Germany is backed by a solid economic Top-class shopping location in trend, population growth, high purchasing power and a large catchment area of northern Germany, increasingly 1.8 million which doubles the number of inhabitants in the city itself. In addition, being buoyed by tourism Hamburg is attracting a growing number of tourists with its additional magnet in the form of the newly opened philharmonic hall on the Elbe ("Elphi"). Visitor numbers to the city are swollen by many cruise ship passengers: last year some 170 ships docked in Hamburg. In all, the hanseatic city counts almost 13 million overnight stays p.a., beaten only by Munich and Berlin. The city offers a broad range of shopping options from conventional mass consumer locations such as the Spitalerstraße to the luxury end of the market such as the Neuer Wall. However, retail space in the city is tight, accounting for only around one seventh of the total sales space. Although there is organic growth through many developments which are extending prime locations further into surrounding areas, there is no single project which would lead to a big increase in space at one stroke. In contrast, a development of this magnitude is planned outside the city in the southern overseas quarter of the HafenCity. The shopping centre which will open in 2021 is expected to be home to 200 businesses over 80,000 square metres of retail space. This could be too much of a good thing since it will create an island solution which will account for around a quarter of the Prime rents could pick up again inner-city shopping space. Prime rents rose to EUR 285 per square metre in 2015 and slightly in view of tight space and have been stable since. Tight supply and Elphi euphoria may lead to another rise. Elphi effect However, there is no longer much room left for any further increases.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 2,205 2,246 2,285 2,319 Unemployment rate % 7.6 7.4 7.2 7.3 Retail sales EUR m/% yoy 15,761 / 4.5 16,387 / 4.0 17,022 / 3.9 17,598 / 3.4 Retail sales EUR/sqm sales space 5,321 5,492 5,647 5,779 Supply Retail space in sqm '000 2,962 2,984 3,015 3,045 Retail space % yoy 1.1 0.7 1.0 1.0 Retail rent Prime/secondary location EUR/sqm 275 / 40.0 285 / 40.0 285 / 40.0 290 / 40.0 Prime/secondary location % yoy 5.8 / 0.0 3.6 / 0.0 0.0 / 0.0 1.8 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
42 43 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
HANNOVER
POPULATION GROWTH UNEMPOYMENT RATE (%)
116 18 16 112 14 12 108 10 8 104 6 4 100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Hannover Regional-12 Top-7 Hannover Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
Hannover is by far the largest city in Lower Saxony with a population of around Economic, scientific and 530,000; it is the 13th largest in Germany. The city is the regional capital, administrative centre in administrative centre and an important economic centre for the Land. Through the Lower Saxony CeBIT, the Hannover Trade Fair and the IAA Motor Show, Hannover is also an important trade-fair centre; in 2000, it hosted the EXPO 2000. As an economic centre, Hannover benefits from its function as an important transport hub in an east-west and north-south direction which means that a strong logistics activity has developed. Traditionally, industry has been represented by mechanical engineering and automobile manufacturing along with related suppliers. The city is also an important centre for financial services, above all for the insurance sector: Hannover Re and Talanx, both listed in the MDAX, have their head office here. However, Hannover also has a DAX company, the automotive supplier Continental. It is also an important seat of learning with the Leibniz University and eight further higher education institutions with almost 40,000 students and various research establishments. Nevertheless, unemployment is relatively high in spite of a broadly-based labour market.
Office space in Hannover
Hannover plays a preeminent role among the regional centres in the office market with Office: biggest office market 4.5 million square metres of office space, making it the biggest German office market among top 7
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Hannover Regional-12 Top-7 Hannover Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
42 43 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
TAKE-UP AS % OF OFFICE SPACE TREND IN OFFICE SPACE AND EMPLOYMENT
6 120
5 115
4 110
3 105
2 100
1 95
0 90 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Hannover Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
Among the top locations. It is followed a long way behind by Nuremberg with 3.6 million Prime rent remained stable on a high square metres ahead of Bonn with 3.2 million square metres. All the other office loca- level in 2016 tions in Germany are below the 3 million square metre mark. High demand for office space reflects combined demand from the commercial sector, the science and technology sector and administration. However, in spite of the ample volume, there is no surplus: the vacancy rate is not only below-average at 4.5 per cent; it has been falling steadily since 2012. Speculative office projects are rare; generally any new building is for a specific tenant. One current example is the head office for the truck manufacturer WABCO. Although prime rents are not the highest of all the regional centres at EUR 14.80 per square metre, only a few such as Mannhein, which is also covered in this report, are more expensive. However, the level of rents is already fairly high. The stagnation in rent in the last few years after a sharp increase is therefore not a reflection of a weak market. Take-up, which has been consistently above 100,000 square metres p.a. since 2007, was around 10 per cent below the ten-year mean at 110,000 in 2016. The vacancy rate is likely to fall further in 2017 since hardly any new space is expected to be completed – only slightly over 10,000 square metres. Prime rents could therefore increase further towards EUR 15 per square metre.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 4.0 4.1 3.4 2.9 Per capita GDP in EUR 61,593 63,347 65,238 66,968 No. of office workers in '000 126.1 127.3 128.5 129.7 No. of office workers % yoy 1.1 1.0 0.9 0.9 Supply Total office space in sqm '000 4,470 4,594 4,585 4,600 Total office space % yoy 0.3 2.8 -0.2 0.3 Vacancy rate % 5.7 5.2 4.5 4.1 Office rents Prime/secondary location EUR/sqm 14.2 / 7.2 14.8 / 7.4 14.8 / 7.6 15.0 / 7.6 Prime/secondary location % yoy 1.4 / 0.0 4.2 / 2.8 0.0 / 2.7 1.4 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
44 45 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Hannover
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 6.000
280 5.000 240 4.000 200
160 3.000
120 2.000 80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Hannover Regional-12 Top-7 Hannover Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Hannover is in ninth place in the prime rent rankings with a retail prime rent of EUR Retail: Hannover the second most 200 per sqm. Apart from the top 7, only Dortmund is more expensive. Some way expensive secondary location after behind in tenth place is Münster, which is also included in this report. This reflects Dortmund Hannover's strength as a shopping location. As in the case of Dortmund, which also suffers from fairly high unemployment, Hannover's strength does not reflect either above-average purchasing power or outstanding centrality (both unremarkable at 101 and 120 respectively). Its plus points are a huge catchment area of 1.8 million people – similar to that of Hamburg – and a large number of visitors to this important rade-fair city, which has over 2.2 million overnight stays p.a. Hannover is hugely attractive as a shopping destination because of its four prime locations which also lead to far above-average productivity per square metre in retail. Because of its good com- petitive position, the two big shopping-centre openings in the surrounding area – the A2-Center in 2014 and Möbel-Höffner in 2015 – do not seem to have any or hardly any negative impact on Hannover's prime locations. The fact that prime rents did not rise any further in 2016 is likely to reflect less competition from this source than the earlier rise and the already very high level of rents. We therefore expect rents to remain stable this year as well. There is still potential for development in the Steintorplatz. However, development plans fell through in the autumn of 2016 and the future of the northern end of the prime locations is therefore still undecided.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,696 1,737 1,779 1,812 Unemployment rate % 10.2 9.7 9.3 9.5 Retail sales EUR m/% yoy 4,680 / 3.3 4,829 / 3.2 4,972 / 3.0 5,093 / 2.4 Retail sales EUR/sqm sales space 4,986 5,082 5,044 5,133 Supply Retail space in sqm '000 939 950 986 992 Retail space % yoy -0.2 1.2 3.7 0.7 Retail rent Prime/secondary location EUR/sqm 195 / 13.5 200 / 13.5 200 / 13.5 200 / 13.5 Prime/secondary location % yoy 5.4 / 0.0 2.6 / 0.0 0.0 / 0.0 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
44 45 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
KARLSRUHE
POPULATION GROWTH UNEMPLOYMENT RATE (%)
116 16
14 112 12
10 108 8
104 6
4 100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Karlsruhe Regional-12 Top-7 Karlsruhe Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
Karlsruhe and Mannheim, which both have over 300,000 inhabitants, rank below Important centre for research and Stuttgart in Baden-Württemberg in terms of population, but are very different in administration in the South West character. Unlike the more industrial city of Mannheim, Karlsruhe is primarily a centre of administration, science and technology and services. The city is located on the Upper Rhine and is also home to important institutions such as the Federal Constitu- tional Court, the Federal Supreme Court, the regional government administration and the Federal and State Government Employee Retirement Fund. Karlsruhe is also regarded as an attractive place to live and is seeing a high influx which has led to an increase in the population of 10 per cent in ten years. This is helped by the presence of various higher education institutions in the city with around 40,000 students and many research establishments. The most prominent institution is the Karlsruhe Institute of Technology (KIT), which was formed in 2009 from the Karlsruhe Research Centre and the university. As a centre of commerce, Karlsruhe benefits from favourable transport links via the A5, A6 and A65 motorways and an ICE high-speed train connection, along with an airport and a river port. Apart from the public admin- istration sector and education and research institutions, Karlsruhe is mostly home to companies from the computer and IT sector, the chemical industry and mechanical engineering. Unemployment is very low for a city at 4.8 per cent (December 2016).
Office space in Karlsruhe
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Karlsruhe Regional-12 Top-7 Karlsruhe Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
46 47 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
TAKE-UP AS % OF OFFICE SPACE TREND IN OFFICE SPACE AND EMPLOYMENT
6 135
130 5 125 4 120
3 115
110 2 105 1 100
0 95 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Karlsruhe Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
Karlsruhe's function as a centre for the service sector and for science and technology Office: low, but steadily falling obviously also means a relatively high demand for office space. At 2.4m square me- vacancy rate going hand-in-hand tres, Karlsruhe has over 15 percent more office space than Mannheim. A flourishing with ongoing rise in prime rents services sector has led to a sharp increase in office employment which has grown by almost 25 per cent within the space of 10 years, while office space has only grown by around one third of this amount. This has led to a fall in the vacancy rate from over 6 per cent to well under 4 per cent since 2005, one of the lowest figures of the regional centres under consideration. Prime rents have seen an above-average increase of one third within 10 years to EUR 13.30 per square metre at present, driven by a growing shortage of space. Last year saw a record take-up of 72,000 sqm, double the ten-year average. This enormous rise reflects two major deals: tenants are the Munic- ipal Association of Baden-Württemberg for Pensions and Related Benefits (KVBW) with a rental agreement for 16,500 square metres and the drugstore chain dm which has signed a rental agreement for 33,000 square metres for a new build head office. The space in question is expected to be completed in 2018, which is likely to lead to an increase in the vacancy rate next year. This year, however, access to new space is fairly moderate, so that the vacancy rate will fall further, while prime rents could increase slightly again.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 2.7 4.4 2.7 2.5 Per capita GDP in EUR 64,824 66,538 67,609 68,804 No. of office workers in '000 83.3 83.0 84.5 86.0 No. of office workers % yoy 5.4 -0.3 1.8 1.8 Supply Total office space in sqm '000 2,344 2,367 2,372 2,380 Total office space % yoy 1.8 1.0 0.2 0.3 Vacancy rate % 3.8 3.8 3.6 3.4 Office rents Prime/secondary location EUR/sqm 12.7 / 6.2 13.0 / 6.2 13.3 / 6.2 13.5 / 6.2 Prime/secondary location % yoy 1.6 / 0.0 2.4 / 0.0 2.3 / 0.0 1.5 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
46 47 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Karlsruhe
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 6.000
280 5.000 240 4.000 200
160 3.000
120 2.000 80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Karlsruhe Regional-12 Top-7 Karlsruhe Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Karlsruhe is an attractive location with a fast growing population, low unemployment Strong retail location with and a large catchment area of around 1.1 million people. In addition, there is demand below-average rent trend from the many visitors – around 1.1 million overnight stays p.a. – to the city with its streets arranged in a fan shape leading to the castle at its centre. The city's strength as a shopping location is helped by two well-integrated city-centre shopping malls: the Postgalerie and Ettlinger Tor. The opening of the latter in 2005 led to a 10 per cent fall in prime rents to EUR 105 per square metre. However, the trend in prime rents, which was initially dampened by an increase in sales space, remains muted to this day. How- ever, the fact that prime rents are likely to stagnate at EUR 110 per square metre this year as well does reflects weaknesses in Karlsruhe as a shopping location. On the contrary: demand for space from chains is high. The key dampening factor is from major engineering works being carried out by the city to move one of the city's tram lines underground. This has meant a huge building site in one of the main shopping streets, the Kaiserstraße, since 2014. The negative impact on retail is likely to drag on beyond 2019 when the building work is scheduled to be completed: firstly, there are signs of significant delays; secondly, completion of this project will be followed by a Building works in the city set to remodelling of the Kaiserstraße, although it is then expected to be emerge resplendent dampen rents for some years to and will also become a proper pedestrian zone without any tram traffic. come
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,965 1,987 2,010 2,033 Unemployment rate % 5.5 5.5 5.4 5.4 Retail sales EUR m/% yoy 2,303 / 3.9 2,400 / 4.2 2,472 / 3.0 2,525 / 2.1 Retail sales EUR/sqm sales space 4,391 4,492 4,512 4,464 Supply Retail space in sqm '000 524 534 548 565 Retail space % yoy 0.6 1.9 2.5 3.2 Retail rent Prime/secondary location EUR/sqm 113 / 8.5 110 / 8.5 110 / 8.5 112 / 8.5 Prime/secondary location % yoy 2.7 / 0.0 -2.7 / 0.0 0.0 / 0.0 1.8 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
48 49 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
LEIPZIG
POPULATION GROWTH UNEMPLOYMENT RATE (%)
120 21
116 18
15 112 12 108 9 104 6
100 3
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Leipzig Regional-12 Top-7 Leipzig Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
Leipzig has done very well. It is number one in the rankings of "swarm" cities – i.e. All the signs in Leipzig point to cities which mainly attract young people entering the workplace. A strong influx to the further growth city has led to an increase in the population of almost 15 per cent to nearly 560,000 inhabitants within the space of ten years. As a result, Leipzig is now among the ten biggest cities in Germany. In addition, Leipzig is now the second largest city in eastern Germany behind Berlin and ahead of Dresden. The city's pulling power mainly reflects a combination of economic successes, the fact that it is an important location for science and technology, with seven higher education establishments and a high qual- ity of life. In addition, flats in this attractive city are still reasonably cheap. The city's economic strength has led to a sharp fall in unemployment – in spite of the strong population growth; the rate has more than halved from over 20 per cent at one time to 7.9 per cent in December 2016. This has been helped by the fact that Leipzig has been able to build on its existing position as an important trade fair centre, trading, and industrial location since reunification and that big new production plants were built – e.g. for BMW, Porsche and Siemens. Energy and environmental technology are likely to be "big" in future in the "European city of energy". The Leipzig/Halle airport around which a major logistics hub has developed is also having a positive impact.
Office space in Leipzig
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 30 27 25 24 21 20 18 15 15 12 10 9 6 5 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Leipzig Regional-12 Top-7 Leipzig Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
48 49 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
TAKE-UP AS % OF OFFICE SPACE TREND IN OFFICE SPACE AND EMPLOYMENT
6 130
125 5 120 4 115
3 110
105 2 100 1 95
0 90 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Leipzig Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
The office market in Leipzig is also benefiting significantly from the positive economic Office: recovery on the back of trend. Surplus supply generated in the wake of the post-reunification boom has been economic upturn - marked reduction cut back significantly: the vacancy rate has fallen by two thirds from over 30 per cent in huge vacancy rate of the 1990s at the end of the 1990s to under 12 per cent, helped by a sharp rise in office jobs and the fact that office development has practically come to a standstill. However, the vacancy rate is still twice as high as the average for the regional centres under consideration. As in the case of Dresden, this trend reflects the fact that office buildings in Leipzig are generally much older than in western German locations: there are a relatively large proportion of buildings over 20 years old against only a small amount of modern office space. Out of a total of 2.7 million square metres of office space in Leipzig, which is among the medium-sized office locations, only 100,000 square me- tres have been built after 2005. In spite of over 300,000 square metres of vacant office space, modern offices are therefore in short supply. It therefore comes as no surprise that both rental growth and the level of prime rents are largely in line with the market level. In the last ten years, prime rents have risen by 24 per cent to EUR 13 per sqm. However, the increase last year was muted at less than 1 per cent. At 92,000 square metres, take-up was almost in line with the 10-year mean. The biggest transactions were in the region of around 5,000 square metres, with tenants including LBBW Sach- senbank. Hardly any new office space is expected this year; the volume is not set to rise slightly until 2018. Consequently, 2017 should follow on seamlessly from previous years with a reduction in the vacancy rate and moderate rise in prime rents.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 3.7 4.3 3.5 3.4 Per capita GDP in EUR 37,654 38,359 39,196 40,225 No. of office workers in '000 91.3 93.8 96.0 98.0 No. of office workers % yoy 5.2 2.7 2.4 2.1 Supply Total office space in sqm '000 2,742 2,734 2,712 2,705 Total office space % yoy -1.7 -0.3 -0.8 -0.3 Vacancy rate % 13.5 12.6 11.8 11.2 Office rents Prime/secondary location EUR/sqm 12.5 / 5.5 12.9 / 5.7 13.0 / 5.8 13.2 / 5.8 Prime/secondary location % yoy 2.0 / 0.0 3.2 / 3.6 0.8 / 1.8 1.5 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
50 51 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Leipzig
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES PER SQM
320 6.000
280 5.000 240 4.000 200
160 3.000
120 2.000 80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Leipzig Regional-12 Top-7 Leipzig Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Together with Dresden, Leipzig is – after Berlin – one of the top shopping locations in Retail: as a shopping location, east Germany. Contributory factors are the economic upturn, strong population booming Leipzig is benefiting from growth, a catchment area of 1.2 million people and high volume of visitors. Leipzig's various new developments attractive city centre has successfully fought off competition from the out-of-town shopping centres which were built at the beginning of the 1990s in many eastern Ger- man towns and cities. Today, it is more likely to be the periphery shopping centres which are tending to suffer because of the pulling power of the city centre with its wide range of shops. The trend has been supported by the large Höfe am Brühl shopping centre which opened in 2012. Apart from a high footfall in the top shopping streets, Grimmaische Straße and Petersstraße, the Hainstraße has also done well, not least as a result of the completion in 2016 of a Primark store, which is such a favourite with young shoppers. More attractive retail space is expected in the Leipzig city centre this year with the renovated Petershof. The completion of the Citytunnel at the end of 2013 which considerably improves rail links with the surrounding areas and makes the main shopping district accessible via S-Bahn has also had a positive impact on the number of shoppers coming into the city. In the last few years, prime rents have risen almost without a break to EUR 130 per square metre at present on the back of a positive trend for the shopping location which is equally in demand from national and international retailers. After a stagnation of prime rents in prime locations in 2016, booming Leipzig is one of the few regional centres for which we still expect a slight increase in prime rents this year.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,501 1,515 1,538 1,564 Unemployment rate % 10.2 9.5 9.2 9.3 Retail sales EUR m/% yoy 2,314 / 7.0 2,408 / 4.0 2,485 / 3.2 2,549 / 2.6 Retail sales EUR/sqm sales space 3,326 3,438 3,511 3,556 Supply Retail space in sqm '000 696 700 708 717 Retail space % yoy 0.2 0.7 1.1 1.3 Retail rent Prime/secondary location EUR/sqm 125 / 9.0 130 / 9.5 130 / 9.5 132 / 9.5 Prime/secondary location % yoy 0.0 / 0.0 4.0 / 5.6 0.0 / 0.0 1.5 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
50 51 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
MAINZ
POPULATION GROWTH UNEMPLOYMENT RATE (%)
116 16
14 112 12
10 108 8
104 6
4 100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Mainz Regional-12 Top-7 Mainz Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
The origins of Mainz go back to Roman times. The city's location on the Rhine and Capital of the Rhineland-Palatinate Main was as attractive then as it is now. Today, the city also benefits from its position benefits from its position in the West in the West of the Rhine-Main region and from good transport links. Wiesbaden is of the Rhine-Main region immediately opposite on the other bank of the Rhine. However, unlike Wiesbaden, Mainz is a major university town: the Johannes Gutenberg University is among the biggest universities in Germany with 33,000 students. Its proximity to Frankfurt which has a shortage of housing and high quality of life make Mainz a sought-after place in which to live, leading to the highest residential rents of the regional centres under consideration. The city might grow faster if living costs were lower: the number of inhabitants – almost 210,000 at present – has grown by 7 per cent in the last ten years, compared to the average of the regional property centres. In addition to regional administration and academic institutions, other important element of the local economy are the big media organisations ZDF and SWR along with the 3sat broadcasting centre. The service sector, which focuses mainly on health and social services, also plays an important role. In contrast, there is only a small manufacturing presence. Unemployment stood at 6.4 per cent in December 2016, i.e. within the norms for major cities in the Rhine-Main region.
Office space in Mainz
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Mainz Regional-12 Top-7 Mainz Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
52 53 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
TAKE-UP AS % OF OFFICE SPACE TREND IN OFFICE SPACE AND EMPLOYMENT
6 120
5 115
4 110
3 105
2 100
1 95
0 90 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Mainz Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
Mainz has a fairly small office market with 1.6m square metres of office space. The Relatively small, mainly local city's links to the Rhine-Main region hardly has any impact on demand for office space office market which is mainly local and hardly influenced by the surrounding towns and cities. The public sector is a major factor behind demand and it means that demand is largely non-cyclical; at the same time, it has little impact on growth. This is reflected in below-average prime rents of EUR 12.70 per square metre. Quiet market conditions are reflected in low office take-up which is only half the normal level of regional centres. Annual take-up since 2013 has only been around 20,000 square metres. Of this, larger transactions of 2,000 to 7,000 square metres account for around half. The biggest tenants last year were DRK and the university at around 3,000 square metres respectively. The vacancy rate was below average for a long time with figures of around 6 per cent – currently 5.5 per cent. This is no longer the case; unlike in many other office locations, the level has only fallen marginally in the last few years. Demand for office space could pick up with new offices coming onto the market as part of the major Zollhafen project. After all, modern office space is now in short supply even in the Rhine-Main region as a result of limited office construction in the last few years. Should that not be the case, the hitherto stable vacancy rate could even increase. This Zollhafen project currently year, the office market is likely to perform within the usual framework. We regard a creating office space slight increase in prime rents on a slight decline in the vacancy rate as realistic. Take-up is likely to rise as a result of a large transaction involving the Mainz University of Applied Sciences.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 2.7 3.6 2.6 2.3 Per capita GDP in EUR 60,996 62,392 63,568 64,793 No. of office workers in '000 50.6 52.5 53.4 54.3 No. of office workers % yoy 1.0 3.7 1.7 1.7 Supply Total office space in sqm '000 1,583 1,581 1,592 1,602 Total office space % yoy 0.1 -0.1 0.7 0.6 Vacancy rate % 5.6 5.7 5.5 5.4 Office rents Prime/secondary location EUR/sqm 12.6 / 7.5 12.6 / 7.5 12.7 / 7.5 12.9 / 7.5 Prime/secondary location % yoy 0.8 / 0.0 0.0 / 0.0 0.8 / 0.0 1.2 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
52 53 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Mainz
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Mainz Regional-12 Top-7 Mainz Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
As a shopping location, Mainz benefits from a catchment area of 800,000 inhabitants, Attractive retail location, but strong but has strong competition from Wiesbaden on the other side of the Rhine. The competition from Wiesbaden situation has been exacerbated further by the opening of two shopping centres in Wiesbaden in 2007 and 2008 – especially since Mainz does not have a city-centre shopping mall to attract shoppers. This also means that Mainz lacks the demand from many retailers for larger spaces. This is reflected in the evolution of prime rents, which have risen slower than in other sought-after areas in the last few years. After being stuck at EUR 110 per square metre since 2008, prime rents only rose to EUR 114 per square metre in 2014 where they remain today. Prospects of a shopping centre being built in Mainz's city centre in the foreseeable future are slim. The long planned construction of an ECE shopping centre on the Karstadt site has fallen through, not least because not all the necessary land could be acquired. The plan now is to build commercial premises. So far, however, it has not been decided whether Karstadt will be the anchor tenant or another firm. It also remains to be seen whether a solution can Solution for Karstadt site in be found to attract customers and retailers to the Mainz city centre and away from Ludwigstraße still undecided after other locations. Lately, there has been some movement in prime locations – Am Brand, shopping-centre plan is scrapped Schuster- and Stadthausstraße – through a whole series of changes of tenants, although this has not had any impact on the level of prime rents. We expect prime rents to remain stable this year.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,935 1,975 2,010 2,042 Unemployment rate % 6.4 6.5 6.3 6.4 Retail sales EUR m/% yoy 1,771 / 4.9 1,862 / 5.1 1,937 / 4.0 1,999 / 3.2 Retail sales EUR/sqm sales space 3,558 3,741 3,877 3,997 Supply Retail space in sqm '000 498 498 499 500 Retail space % yoy 0.4 0.0 0.4 0.1 Retail rent Prime/secondary location EUR/sqm 114 / 10.0 114 / 9.5 114 / 9.5 114 / 9.5 Prime/secondary location % yoy 3.6 / 0.0 0.0 / -5.0 0.0 / 0.0 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
54 55 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
MANNHEIM
POPULATION GROWTH UNEMPLOYMENT RATE (%)
116 16
14 112 12
10 108 8
104 6
4 100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Mannheim Regional-12 Top-7 Mannheim Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
Mannheim – the centre of the metropolitan Rhine-Neckar region – with slightly over Important centre for commerce, 300,000 inhabitants and Karlsruhe which is nearly as large are the most highly science and technology with populated cities in the state of Baden-Württemberg after Stuttgart. At 7 to 10 per cent outstanding transport link p.a., population growth is in line with the average for the regional centres under consideration. Unlike Karlsruhe which is a centre for administration and services, the bias in Mannheim is more towards industry. The city is an important economic centre but also a well-known for science and technology with a university and several higher education institutes. As a commercial location, Mannheim from its position on the Rhine and Neckar. The A5/A6 motorways offer good transport links towards Frankfurt, Stuttgart and Paris. The city is also connected to the ICE network and is an important river port. In spite of structural changes, manufacturing – especially chemicals and metal processing – are still important. As the birth place of the motor car, Mannheim is an important production location for Daimler. Other major sectors are insurance and financial services along with logistics. Mannheim's high unemployment rate which peaked at 13 per cent had fallen to 5.3 per cent in December 2016. Mannheim is well City development: ample space equipped to cope with growth: it has substantial areas available for conversion into available for conversion homes and businesses. Some of the space is to be converted into park land for good after the Federal Garden Show in 2023.
Office space in Mannheim
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Mannheim Regional-12 Top-7 Mannheim Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
54 55 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
TAKE-UP AS % OF OFFICE SPACE TREND IN OFFICE SPACE AND EMPLOYMENT
6 120
5 115
4 110
3 105
2 100
1 95
0 90 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Mannheim Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
Although at 2 million sqm, Mannheim's market is not that large, it is nevertheless an Office: Mannheim is one of the most important office location for the economy in the Rhine-Neckar region. Over a number expensive office markets among the of years, office space lagged behind the increase in the number of office workers, top 7 in Germany leading to a drop in the vacancy rate from over 8 to under 5 per cent. Lately, there has been a slight upturn in office construction, although it has not covered the existing demand. Consequently, the vacancy rate could continue to fall. The trend in prime rents underlines the lack of contemporary office space; at EUR 15.20 per square metres, they are the highest among the regional centres covered in this study. Among the top locations in Germany, only Freiburg and Bonn have higher prime rents. Rental growth of 23 per cent in the last ten years is in line with the regional centre average. The typical office take-up for Mannheim stands at slightly under 60,000 square metres p.a. Last year, however, take-up was only around three-quarters of that amount at 45,000 square metres, the lowest figure since 2009. There was no major single trans- action in the five-digit bracket. The two biggest rental agreements were for around 5,500 sqm each. The tenants are Ernst & Young and the City of Mannheim. This year, a relatively high amount of office space is expected to be completed (over 40,000 square metres), which is likely to lead to a slight increase in the vacancy rate. Even so, we expect at most on marginal increase in prime rents, not least in view of an already high level.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 2.7 4.6 2.6 2.3 Per capita GDP in EUR 66,375 68,380 69,475 70,650 No. of office workers in '000 70.8 71.7 72.9 74.0 No. of office workers % yoy 0.3 1.3 1.6 1.6 Supply Total office space in sqm '000 1,993 2,024 2,045 2,060 Total office space % yoy 1.5 1.6 1.0 0.7 Vacancy rate % 5.5 5.2 4.9 5.3 Office rents Prime/secondary location EUR/sqm 14.7 / 7.8 15.0 / 8.0 15.2 / 8.1 15.3 / 8.0 Prime/secondary location % yoy 3.5 / 5.4 2.0 / 2.6 1.3 / 1.3 0.7 / -1.2
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
56 57 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Mannheim
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Mannheim Regional-12 Top-7 Mannheim Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Mannheim is the outstanding shopping location in the Rhine-Neckar region. It has a Outstanding shopping location in catchment area of around 1.3 million people and a very high centrality figure of almost the Rhine-Neckar region 150 points. The location advantages have led to an increase in prime rents to EUR 153 per square metre. Apart from the top locations, only Dortmund, Hannover, Münster and Freiburg are more expensive. Even the Rhein-Galerie which opened in 2010 on the other bank of the Rhine has had practically no impact on Mannheim as a shopping location. The strength of the Mannheim inner city as a shopping destination is also clear from the fact that prime rents have continued to rise sharply in spite of a number of major development projects such as the Q6/Q7. At a cost of EUR 300m, the new shopping mall is now open, and has added extra cachet to the city centre. It has increased sales and hospitality space by almost 20,000 square metres. An 8,000 square metres Primark outlet has opened in the neighbouring building, which is also likely to have a positive impact on footfall. However, every silver lining has its cloud: and Mannheim's second top shopping location in addition to the Planken – the Breite Straße – is likely to become less popular with shoppers and retailers. We estimate that prime rents are likely to remain at best stable this year. In addition, to the new space huge engineering works are set to make life difficult for retailers: from March, the Planken will be undergoing a programme of refurbishment and functional upgrades. The city authorities expect the project to be completed in 2019. This should make the city even more attractive in future.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,729 1,750 1,770 1,790 Unemployment rate % 6.0 6.0 5.8 5.9 Retail sales EUR m/% yoy 2,473 / 2.8 2,554 / 3.3 2,633 / 3.1 2,700 / 2.6 Retail sales EUR/sqm sales space 3,234 3,329 3,353 3,397 Supply Retail space in sqm '000 765 767 785 795 Retail space % yoy 0.5 0.3 2.3 1.2 Retail rent Prime/secondary location EUR/sqm 145 / 12.0 150 / 12.5 153 / 12.5 153 / 12.5 Prime/secondary location % yoy 3.6 / 0.0 3.4 / 4.2 2.0 / 0.0 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
56 57 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
MUNICH
Office space in Munich
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
36 12 32 10 28
24 8 20 6 16
12 4 8 2 4
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Munich Top-7 Regional-12 Munich Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
The dynamic Munich office market stands a good chance of becoming the most Space becoming tight as demand expensive office market in Germany on the back of a further positive trend and high in the Munich office market remains demand for space, unless Brexit leads to a bubble in Frankfurt in terms of demand for high space and an increase in prime rents. Munich already moved very close to Frankfurt in 2016 with prime rents of EUR 34.70 per square metre, less than one euro behind the latter. A decade ago, the gap was much bigger at EUR 4-5. After very high take- up in H1, a full-year figure of over 700,000 square metres seemed realistic; in fact, the final result was much smaller at 581,000 square metres, above all through the absence of big deals. However, this does not in any way reflect lack of demand. It is merely that lack of supply is making it increasingly difficult for potential tenants to find suitable space since the vacancy rate has quickly fallen to 2.7 per cent. This means that vacant office space in Munich was down to just 340,000 square metres in 2016; in Frankfurt, it is three times as high. The situation is likely to get even worse in 2017, not least because newly completed space – around 160,000 in 2016 – is set to halve. Prime rents are therefore likely to rise further, even though they are already high. We regard an increase of over 2 per cent, as was the case last year, as feasible.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 3.7 4.1 3.3 3.1 Per capita GDP in EUR 76,863 78,765 80,332 81,978 No. of office workers in '000 395.5 405.8 414.0 423.0 No. of office workers % yoy 1.7 2.6 2.0 2.2 Supply Total office space in sqm '000 13,652 13,704 13,790 13,870 Total office space % yoy 0.6 0.4 0.6 0.6 Vacancy rate % 5.6 3.8 2.7 2.3 Office rents Prime/secondary location EUR/sqm 33.5 / 12.5 34.1 / 12.5 34.7 / 13.5 35.5 / 13.8 Prime/secondary location % yoy 6.3 / 4.2 1.8 / 0.0 1.8 / 8.0 2.3 / 1.9
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
58 59 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Munich
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
360 6.000 320 5.000 280
240 4.000 200 3.000 160
120 2.000 80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Munich Top-7 Regional-12 Munich Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Munich is the undisputed leading retail location in Germany. The Kaufingerstraße often Munich remains the leading comes out as the number one shopping mile in terms of footfall in regular counts. At shopping destination in Germany the same time, retail-space productivity and purchasing power are also top of the rankings. Munich's catchment area not only includes 1.4 million Munich residents by a further 1.6 million from the wealthy surrounding areas. In addition, the city welcomes many business travellers and visitors on city breaks, including many Arabs for whom Munich is one of the preferred shopping destinations. Munich is therefore in second place behind Berlin with over 14 million overnight stays p.a. However, Munich is also attractive as a shopping destination because the city itself is a great place to stay with a broad variety of shops. Apart from the usual retail and luxury stores, the city has a large number of local shops. This means that it has little of the usual high-street "cloning". All these factors lead to the highest prime rents in the German retail sector at EUR 345 per square metre most recently. As a rule, moreover, any new space is immediately absorbed by the market. It therefore comes as no surprise that there is a well-filled pipeline of new developments. The biggest retail development project is the rebuilding of the main train station, although it is likely to take many years before Room for further rise in prime rents completion. However, any further scope for prime rents is rather limited since they are likely to be exhausted already so high. We expect a stable trend for rents this year.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 2,391 2,424 2,455 2,483 Unemployment rate % 5.2 4.9 4.7 4.8 Retail sales EUR m/% yoy 9,652 / 3.3 9,993 / 3.5 10,371 / 3.8 10,713 / 3.3 Retail sales EUR/sqm sales space 4,705 4,830 4,961 5,060 Supply Retail space in sqm '000 2,051 2,069 2,090 2,117 Retail space % yoy 1.7 0.9 1.0 1.3 Retail rent Prime/secondary location EUR/sqm 325 / 37.0 340 / 37.0 345 / 37.0 345 / 37.0 Prime/secondary location % yoy 3.2 / 5.7 4.6 / 0.0 1.5 / 2.7 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
58 59 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
MÜNSTER
POPULATION GROWTH UNEMPLOYMENT RATE (%)
120 16
14 116 12 112 10
108 8
6 104 4
100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Münster Regional-12 Top-7 Münster Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
Whereas many large towns in North Rhine-Westphalia are facing economic problems Centre of Westphalia doing well and a dwindling population, things in Westphalian Münster just keep on going up. The in every way economy is booming with rising employment figures and a correspondingly low unem- ployment rate of 5.4 per cent (December 2016). Münster welcomes many visitors keen to experience its medieval charm based on a restored old town with its well-known Prinzipalmarkt. In addition, the city is experiencing strong population growth: the number of inhabitants has grown by over 30,000 within the space of ten years. As a result of this increase of almost 13 per cent. the number of inhabitants has now passed the 300,000 mark. The economic trend is driven not by a handful of large companies but rather by regional SMEs. Münster as a business location is strongly service- oriented with manufacturing playing a fairly secondary role (producing mainly paints and coatings). However, the city also benefits from its role as economic and administrative centre for Westphalia. The region is larger than most German Länder. An important part of the city's strong development is its university, the Westfälische Wilhelms-Universität, which is rated as one of the flagships of teaching and research with almost 50,000 students. An important centre for biotechnology and nanotechnology has emerged close to the university.
Office space in Münster
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Münster Regional-12 Top-7 Münster Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
60 61 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
TAKE-UP AS % OF OFFICE SPACE TREND IN OFFICE SPACE AND EMPLOYMENT
6 130
5 125
120 4 115 3 110 2 105
1 100
0 95 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Münster Regional-12 Top-7 office space office workers
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
At 2.2 million square metres, Münster is a medium-sized office market in relation to Office: medium-sized office market the regional centres analysed. New development tends to be for owner-occupier with strong employment growth and purposes such as the Sparkassen headquarters or the IHK training centre. Office low vacancy rate space has grown by 11 per cent in the last ten years, slightly above the average. However, it has not kept pace with the increase in the number of office workers, which has been almost twice as high at 21 per cent. This has led to a noticeable fall in the vacancy rate which is now a low 3 per cent. Prime rents have moved inversely, rising by around 20 per cent since 2006 to an above-average EUR 14.20 per square metre. Take-up generally fluctuates within a range of 40,000 to 80,000 square metres, depending on whether or not there are any big transactions. The figure of 60,000 last year was exactly in the middle of the range; it included a deal of around 8,000 square metres and two deals of around 3,000 square metres, tenants being the Federal Revenue Administration, the Gesellschaft für Warenwirtschafts-Systeme (GWS) and consultants Cronos. The vacancy rate has hardly fallen any further since 2013 in view of a fairly high level of new office completions of around 30,000 square metres p.a. There should be a similar volume this year, which means that the decline in the vacancy rate is likely to be minimal at best. In light of already high rents, the scope for any further rise is likely to be moderate at most.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 4.4 2.5 3.1 2.9 Per capita GDP in EUR 60,403 60,975 62,213 63,513 No. of office workers in '000 68.9 70.0 71.2 72.4 No. of office workers % yoy 2.0 1.7 1.7 1.6 Supply Total office space in sqm '000 2,142 2,170 2,202 2,220 Total office space % yoy 1.0 1.3 1.4 0.8 Vacancy rate % 3.2 3.3 3.0 2.9 Office rents Prime/secondary location EUR/sqm 13.7 / 6.0 14.1 / 6.1 14.2 / 6.2 14.3 / 6.2 Prime/secondary location % yoy 0.0 / 0.0 2.9 / 1.7 0.7 / 1.6 1.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
60 61 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Münster
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Münster Regional-12 Top-7 Münster Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Conditions for the retail sector in Münster are outstanding. The affluent population is Retail: attractive retail space scarce experiencing strong growth, and moreover customer numbers are boosted by a catch- in this attractive shopping location ment area of 1.5 million inhabitants and a large number of tourists. In addition, the city also has an attractive range of shops, including both mass-market prime locations with the usual high-street names such as the Ludgeristraße along with more exclusive, owner-run shops on the Prinzipalmarkt. Münster also has an attractive inner-city shopping centre with the Münster Arcaden which opened in 2006. The city centre's strength is illustrated by the fact that one third of total retail sales are generated there. This very attractive location for retailers has led to a sharp rise in prime rents in the last few years. Rents have risen by over 40 percent in ten years, which is more than in some top locations. At EUR 175 per sqm, prime rents exceed the regional centre average of EUR 135 per square metre. Among the top seven locations, only Hannover and Dortmund have even higher retail rents. Last year, prime rents rose by a further EUR 5 per sqm. After this increase and in view of the level of rents already achieved, we do not expect any further rent rise this year. However, the location is likely to continue to do well. Vacant space is in scarce and in high demand. In addition, the opening of a 7,000 square metres Primark store in 2017 on the site of the former Sinn- Lefer department store should be a magnet for shoppers. Secondary locations such as the Roggenmarkt could benefit from high rents in prime locations.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 2,082 2,133 2,176 2,213 Unemployment rate % 6.0 5.8 5.5 5.6 Retail sales EUR m/% yoy 1,929 / 3.9 2,012 / 4.3 2,082 / 3.5 2,142 / 2.9 Retail sales EUR/sqm sales space 3,146 3,224 3,271 3,319 Supply Retail space in sqm '000 613 624 636 646 Retail space % yoy 2.3 1.8 2.0 1.4 Retail rent Prime/secondary location EUR/sqm 170 / 10.0 170 / 10.0 175 / 10.0 175 / 10.0 Prime/secondary location % yoy 3.0 / 0.0 0.0 / 0.0 2.9 / 0.0 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
62 63 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
NUREMBERG
POPULATION GROWTH UNEMPLOYMENT RATE (%)
116 16
14 112 12
10 108 8
104 6
4 100 2
96 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Nuremberg Regional-12 Top-7 Nuremberg Regional-12 Top-7
Source: Feri Index 2000 = 100 Source: BulwienGesa, DZ BANK AG forecasts
The Nuremberg conurbation together with the neighbouring towns of Fürth and Nuremberg and the surrounding Erlangen form an important economic region. Very good transport connections through region have developed into a major an international airport, four motorways, a central rail/ICE hub and the Main-Danube engine of growth canal are a major plus point for the region's economic development. In addition, Nuremberg is a major trade fair centre with the medieval city and Kaiserburg as backdrop. The structural change in industry which began in the 1970s which also brought setbacks in the form of major bankruptcies such as Arcandor/Quelle weakened the economic base for the city's 500,000 inhabitants. In addition, there was the closure of various manufacturing plants, e.g. that of AEG, Grundig or Triumph- Adler. However, Nuremberg's evolution into a service centre has put the city back on track, as illustrated by a fairly moderate unemployment rate – albeit still fairly high by Bavarian standards – which has halved from a peak of over 13 per cent. Unemployment in December 2016 was down to 6.1 per cent. There has been strong growth above all in the IT and high-tech sectors along with energy and medical technology. Success in logistics reflects outstanding transport links. Another positive effect has come from the development of Nuremberg into a centre for science and technology with the Friedrich-Alexander University Erlangen-Nuremberg.
Office space in Nuremberg
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 9 4 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Nuremberg Regional-12 Top-7 Nuremberg Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
62 63 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
TAKE-UP AS % OF OFFICE SPACE TREND IN OFFICE SPACE AND EMPLOYMENT
6 120
5 115
4 110
3 105
100 2
95 1
90 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 office space office workers Nuremberg Regional-12 Top-7
Source: BulwienGesa Source: Feri, BulwienGesa Index 2000 = 100
Nuremberg is the third largest office location among the top seven in Germany after Office: largest office market in Hannover and Bonn. In spite of many setbacks through closures and big bankruptcy Bavaria with moderate market cases, Nuremberg's economy has done well on the whole. However, there have been activity consequences: in the last ten years, the number of office workers has increased by 11 per cent, which is slower than in all the other locations analysed in this report. In contrast, office space has grown by 8 per cent during this period, which is slightly faster than the regional centre average. Nevertheless, the reduction in the office vacancy rate has matched the downward trend across Germany. The vacancy rate has fallen from slightly over 8 per cent in 2006 to 6.1 per cent at present, while prime rents in Nuremberg have risen at the fastest rate together with Augsburg, with an aggregate increase of almost 40 per cent. However, the starting point was relatively low, so that the prime rents of EUR 13.80 per square metre are now largely in line with the average for the 12 regional centres analysed. Activity in the office market – as measured by annual take-up in relation to total office space – is relatively weak, although this is also a reflection of the large amount of office space in Nuremberg. Last year, take-up was a very respectable 70,000 sqm, although just four deals accounted for over 40,000 square metres of this; tenants include the ministry of health, the IHK and SDV-IT. This year, as in 2016, we expect a further decline in the vacancy rate and further increase in prime rents, not least on the back of a low completion volume of under 10,000 square metres.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 3.4 3.8 2.9 2.7 Per capita GDP in EUR 57,241 58,798 60,077 61,367 No. of office workers in '000 114.0 116.0 117.8 119.5 No. of office workers % yoy 1.7 1.8 1.6 1.4 Supply Total office space in sqm '000 3,539 3,592 3,604 3,620 Total office space % yoy 1.4 1.5 0.3 0.5 Vacancy rate % 7.5 6.7 6.1 5.7 Office rents Prime/secondary location EUR/sqm 13.2 / 6.9 13.5 / 7.0 13.8 / 7.2 14.1 / 7.2 Prime/secondary location % yoy 1.5 / 1.5 2.3 / 1.4 2.2 / 2.9 2.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
64 65 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Nuremberg
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Nuremberg Regional-12 Top-7 Nuremberg Regional-12 Top-7
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Nuremberg is the leading shopping location in Northern Bavaria. At over 130, the city's Retail: top shopping location in centrality score is correspondingly high and the catchment area is large with around Northern Bavaria with large two million inhabitants with hardly any competition from the surrounding towns. In catchment area, high purchasing addition, there are many visitors to the city: with over three million overnight stays p.a., power and lively tourism Nuremberg makes it into ninth place among favourite German tourist destinations. In addition, purchasing power is above the countrywide average at 104 points. Nurem- berg scores highly as a shopping destination; its charming old town with its attractive shopping circuit of top locations combine to make it a pleasant place in which to spend time. Karolinenstraße scores highest in terms of footfall, number of chain stores and prime rents. High demand from retailers has led to an increase in prime rents of over 40 per cent in the last ten years, almost twice the level in other regional centres. Since 2015, prime rents stands at EUR 145 per square metres – EUR 10 less than the ref- erence figure for the regional centres under consideration. Last year, however, there was no increase. One retail project stands out, namely a new build project to replace the Wöhrl sports shop on Ludwigsplatz. Nuremberg only has one fairly small inner-city shopping centre, the City-Point. Outside the city, there are the older Franken Centre and the now revamped Mercado. Building start on a further shopping centre on the Source site has so far been postponed. In contrast, the future of the former Kaufhof store on Aufseßplatz has now been decided: EDEKA is planning to build a convenience store. In view of above-average rents, we expect at most a marginal rise in prime rents this year.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 1,973 2,005 2,035 2,061 Unemployment rate % 7.6 7.2 7.0 7.0 Retail sales EUR m/% yoy 3,552 / 4.1 3,663 / 3.1 3,763 / 2.7 3,843 / 2.1 Retail sales EUR/sqm sales space 2,755 2,790 2,838 2,865 Supply Retail space in sqm '000 1,290 1,313 1,326 1,341 Retail space % yoy 2.3 1.8 1.0 1.1 Retail rent Prime/secondary location EUR/sqm 140 / 15.0 145 / 15.0 145 / 15.0 146 / 15.0 Prime/secondary location % yoy 3.7 / 7.1 3.6 / 0.0 0.0 / 0.0 1.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
64 65 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
STUTTGART
Office space
PRIME RENTS FOR OFFICE SPACE IN EUR PER SQM VACANCY RATE (%)
30 12 27 10 24 21 8 18 15 6 12 4 9 6 2 3 0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Stuttgart Top-7 Regional-12 Stuttgart Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: BulwienGesa, DZ BANK AG forecasts
Although the second top location in southern Germany cannot match Munich for Office space also becoming tight market size, take-up and prime rents, there are definitely parallels since the Stuttgart in Stuttgart office market has been doing well for some years now. However, unlike in Munich, take-up in 2016 was notably higher on the previous year. Whereas in Munich this reflected a lack of big deals, in Stuttgart, the contract for the new Daimler headquarters which cover 77,000 square metres alone account for almost one fifth of the total take- up of 400,000 square metres. This led to the ten-year mean being exceeded by 90 per cent. There were four further deals of over 10,000 square metres each with two times Bosch, Trelleborg Sealing Solutions and Südwestmetall as tenants. As in Munich, a shortage of space is proving a sticking point for the market. In Stuttgart as well, the vacancy rate has fallen to under 3 per cent, equating to 220,000 square metres of vacant office space. However, the Stuttgart office market differs from the market in the Bavarian capital especially through prime rents which are over 40 per cent lower at EUR 19.70 per square metre at present. We do not expect any major change in the vacancy level since a fairly high volume of new office space estimated at Can prime rents hit the EUR 20 mark 110,000 square metres is likely to come onto the market. However, in view of the for the first time in 2017? shortage, prime rents are again likely to rise in 2017 and could therefore have the EUR 20 mark per square metre in its sights.
OFFICE FORECASTS
2014 2015 2016 2017e Demand GDP % yoy 3.2 4.9 3.0 2.8 Per capita GDP in EUR 85,452 88,532 90,352 92,246 No. of office workers in '000 189.1 194.0 198.0 202.0 No. of office workers % yoy 2.1 2.6 2.1 2.0 Supply Total office space in sqm '000 7,544 7,603 7,645 7,750 Total office space % yoy 0.3 0.8 0.5 1.4 Vacancy rate % 4.3 3.7 2.9 2.7 Office rents Prime/secondary location EUR/sqm 19.0 / 8.7 19.3 / 8.7 19.7 / 8.8 20.0 / 8.9 Prime/secondary location % yoy 1.6 / 0.0 1.6 / 0.0 2.1 / 1.1 1.5 / 1.1
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
66 67 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Retail space in Stuttgart
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
320 5.000
280 4.000 240
200 3.000 160
120 2.000
80 1.000 40
0 0 2002 2005 2008 2011 2014 2017e 2002 2005 2008 2011 2014 2017e Stuttgart Top-7 Regional-12 Stuttgart Top-7 Regional-12
Source: BulwienGesa, DZ BANK AG forecasts Source: Feri
Retail in Germany's sixth largest city benefits from 2.7 million inhabitants and a strong Attractive shopping location in eco- economy in the surrounding catchment area, leading to high purchasing power and nomically strong region centrality. However, a large number of visitors to the city with around 3.5 million overnight stays p.a. also generate demand. As in Munich and Cologne, the degree of retail chain "cloning" is also lower in Stuttgart, which means a greater diversity of shops. Stuttgart has coped well with the almost simultaneous opening of the two inner-city shopping centres, the MILANEO und GERBER in the autumn of 2014 jointly bringing around 60,000 sqm in additional retail space, an illustration of the strength of the city as a location: prime rents rose from EUR 235 per square metre in Q3 2014 to EUR 250 last year. Consequently, the forthcoming opening of the Dorotheen Quartier by textiles retailer Breuninger in the spring of 2017 with a further 10,000 square metres of shopping space should not be a problem for other retailers. The opening of the former Karstadt store in Königstraße projected for the autumn of 2017 will be the next fairly large shopping project for the centre of Stuttgart. Almost half of the 17,000 square metres of sales space has already been let to the Irish fash- ion chain Primark, which will then have two stores in Stuttgart. In contrast, nearby Sportarena is set to close down in 2017, like the Frankfurt branch. The space will be taken over by the fashion chain Saks Off 5th, which sells discount designer clothing. Further increase in space means The likelihood of a further increase in rent is limited since retailers are no longer so limited further rise in rents willing to pay higher rents and in view of the increase in retail space.
RETAIL FORECASTS
2014 2015 2016 2017e Demand Per cap. disposable income EUR/month 2,159 2,192 2,223 2,251 Unemployment rate % 5.7 5.5 5.3 5.4 Retail sales EUR m/% yoy 3,803 / 4.1 3,935 / 3.5 4,055 / 3.0 4,151 / 2.4 Retail sales EUR/sqm sales space 3,826 3,711 3,752 3,742 Supply Retail space in sqm '000 994 1,060 1,081 1,109 Retail space % yoy 0.4 6.7 1.9 2.7 Retail rent Prime/secondary location EUR/sqm 240 / 14.0 245 / 14.5 250 / 14.5 250 / 14.5 Prime/secondary location % yoy 2.1 / 0.0 2.1 / 3.6 2.0 / 3.4 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK AG forecasts yoy = year-on-year
66 67 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
LOCATIONS AT A GLANCE
OFFICE SPACE
Total Office Space Rent in Prime location Change in Rent Vacancy Rate
2016 Data EUR/sqm (% yoy) (%)
2006 in Per Office to 1,000 Worker 2015 2016 2017e 2015 2016 2017e 2015 2016 2017e 2016 sqm in sqm (%)
Augsburg 1,376 6.7 26.1 12.2 12.5 12.7 1.7 2.5 1.8 6.6 6.3 6.0 Bremen 2,620 11.9 25.4 12.5 12.5 12.6 0.0 0.0 1.0 4.5 4.5 4.4 Darmstadt 1,603 14.9 31.5 13.0 13.1 13.3 0.0 0.8 1.5 4.5 4.6 4.5 Dresden 2,631 -0.8 25.6 12.3 12.6 12.8 1.7 2.4 1.6 8.6 8.4 8.1 Essen 2,993 8.5 29.4 14.0 14.0 14.0 0.0 0.0 0.0 5.0 5.4 6.1 Hannover 4,585 7.7 35.7 14.8 14.8 15.0 4.2 0.0 1.4 5.2 4.5 4.1 Karlsruhe 2,372 8.2 28.1 13.0 13.3 13.5 2.4 2.3 1.5 3.8 3.6 3.4 Leipzig 2,712 -0.9 28.2 12.9 13.0 13.2 3.2 0.8 1.5 12.6 11.8 11.2 Mainz 1,592 6.0 29.8 12.6 12.7 12.9 0.0 0.8 1.2 5.7 5.5 5.4 Mannheim 2,045 9.8 28.1 15.0 15.2 15.3 2.0 1.3 0.7 5.2 4.9 5.3 Münster 2,202 11.4 30.9 14.1 14.2 14.3 2.9 0.7 1.0 3.3 3.0 2.9 Nuremberg 3,604 8.2 30.6 13.5 13.8 14.1 2.3 2.2 2.0 6.7 6.1 5.7
Regional centre mean 2,528 7.2 29.3 13.5 13.6 13.8 2.0 1.0 1.3 6.1 5.8 5.6 Total 30,334
Berlin 18,947 4.8 34.1 24.0 28.0 28.5 4.3 16.7 1.8 3.8 3.0 2.8 Cologne 7,582 7.2 31.7 21.0 21.0 21.3 0.0 0.0 1.5 6.0 5.6 5.3 Düsseldorf 7,635 10.1 37.1 24.0 24.5 25.0 0.0 2.1 2.0 8.8 8.3 8.0 Frankfurt 10,320 5.6 35.8 35.5 35.5 36.6 1.4 0.0 3.0 11.3 10.7 10.2 Hamburg 13,724 10.1 32.2 25.0 26.0 26.0 2.0 4.0 0.0 5.5 5.3 5.0 Munich 13,790 6.6 33.3 34.1 34.7 35.5 1.8 1.8 2.3 3.8 2.7 2.3 Stuttgart 7,645 5.3 38.6 19.3 19.7 20.0 1.6 2.1 1.5 3.7 2.9 2.7
Top location mean 11,378 6.9 34.2 26.7 28.0 28.5 1.9 4.9 1.8 5.7 5.1 4.8 Total 79,643
Source: BulwienGesa, DZ BANK AG forecasts
Means are space-weighted. The prime rents indicated by BulwienGesa represent the mean of the three top three to four percent of the rental market, which means that the prime rents given are not the same as the absolute top rent. For this reason, the higher rent figures for individual locations, some of which are quoted in alter- native market reports, are fundamentally not contradictory.
68 69 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
RETAIL SPACE
Total Retail Space Rent in Prime location Change in Rent Retail Sales
2016 Data in EUR/sqm (% yoy) (% yoy)
2006 in to Per capita 1,000 2015 2016 2017e 2015 2016 2017e 2015 2016 2017e 2016 in sqm sqm (%)
Augsburg 935 14.5 3.3 115 115 115 4.5 0.0 0.0 3.4 2.5 1.7 Bremen 1,550 26.7 2.8 130 130 130 4.0 0.0 0.0 3.8 3.4 3.0 Darmstadt 383 7.1 2.5 100 98 99 0.0 -2.0 1.0 3.8 3.1 2.2 Dresden 1,049 28.5 1.9 110 110 110 0.0 0.0 0.0 3.2 2.8 2.4 Essen 863 18.6 1.5 110 108 109 0.0 -1.8 0.9 3.4 2.5 2.1 Hannover 986 20.5 1.9 200 200 200 2.6 0.0 0.0 3.2 3.0 2.4 Karlsruhe 548 12.9 1.8 110 110 112 -2.7 0.0 1.8 4.2 3.0 2.1 Leipzig 708 45.7 1.3 130 130 132 4.0 0.0 1.5 4.0 3.2 2.6 Mainz 499 19.6 2.4 114 114 114 0.0 0.0 0.0 5.1 4.0 3.2 Mannheim 785 15.7 2.6 150 153 153 3.4 2.0 0.0 3.3 3.1 2.6 Münster 636 30.7 2.1 170 175 175 0.0 2.9 0.0 4.3 3.5 2.9 Nuremberg 1,326 25.3 2.6 145 145 146 3.6 0.0 1.0 3.1 2.7 2.1
Regional centres mean 856 22.7 2.1 134.4 134.9 135.4 2.2 0.4 0.4 3.6 3.0 2.4 Total 10,269
Berlin 6,375 23.4 1.8 300 310 310 3.4 3.3 0.0 3.9 2.8 2.3 Cologne 1,413 6.0 1.3 250 250 251 4.2 0.0 0.5 4.1 3.1 2.6 Düsseldorf 1,240 36.6 2.0 270 275 276 3.8 1.9 0.5 4.3 3.3 2.7 Frankfurt 1,519 32.5 2.1 300 300 300 3.4 0.0 0.0 3.8 3.3 2.8 Hamburg 3,015 19.0 1.7 285 285 290 3.6 0.0 1.8 4.0 3.9 3.4 Munich 2,090 27.1 1.4 340 345 345 4.6 1.5 0.0 3.5 3.8 3.3 Stuttgart 1,081 18.8 1.7 245 250 250 2.1 2.0 0.0 3.5 3.0 2.4
Top locations mean 2,390 22.7 1.7 292.3 297.4 298.5 3.6 1.8 0.4 3.9 3.3 2.8 Total 16,733
Source: BulwienGesa, Feri, DZ BANK AG forecasts
Means are space-weighted. The prime rents indicated by BulwienGesa represent the mean of the three top three to four percent of the rental market, which means that the prime rents given are not the same as the absolute top rent. For this reason, the higher rent figures for individual locations, some of which are quoted in alter- native market reports, are fundamentally not contradictory.
68 69 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
STRUCTURAL DATA 2016
Inhabitants Per Capita Dispos- Unemployment Inhabitants 2006-2016 GDP Per Capita GDP able Income Rate in 1,000 (%) EUR m (EUR) EUR/Month (%)
Augsburg 287 8.1 14,741 51,424 1,765 6.2 Bremen 555 2.1 31,035 55,951 2,019 9.7 Darmstadt 154 12.1 12,107 78,778 2,016 6.2 Dresden 541 10.7 21,836 40,390 1,695 7.7 Essen 580 0.6 30,463 52,550 1,916 11.7 Hannover 529 5.9 34,482 65,238 1,779 9.3 Karlsruhe 309 10.2 20,870 67,609 2,010 5.4 Leipzig 555 14.7 21,770 39,196 1,538 9.2 Mainz 209 7.3 13,316 63,568 2,010 6.3 Mannheim 305 7.0 21,164 69,475 1,770 5.8 Münster 308 12.7 19,149 62,213 2,176 5.5 Nuremberg 507 6.0 30,485 60,077 2,035 7.0
Regional centres mean 403 7.4 22,618 56,109 1,869 7.8 Total 4,837 271,418
Berlin 3,510 8.9 142,742 40,667 1,802 10.3 Cologne 1,053 7.2 64,373 61,146 2,019 9.1 Düsseldorf 610 6.6 51,254 83,999 2,359 8.2 Frankfurt 736 16.0 76,765 104,355 1,934 6.6 Hamburg 1,784 7.0 126,560 70,924 2,285 7.2 Munich 1,457 14.9 117,050 80,332 2,455 4.7 Stuttgart 621 8.8 56,141 90,352 2,223 5.3
Top location mean 1,396 9.6 90,698 64,973 2,082 8.1 Total 9,771 634,885
Source: Feri, BA, own calculations Means are inhabitant and space-weighted
70 71 Main regional real estate markets in Germany | 2017 Main regional real estate markets in Germany | 2017
Imprint
Published by: DG HYP – Deutsche Genossenschafts-Hypothekenbank AG, Rosenstrasse 2, 20095 Hamburg Management Board: Dr. Georg Reutter (Chairman of the Management Board), Manfred Salber
Authors: Responsible: stefan Bielmeier, Head of Research and Volkswirtschaft Author: thorsten Lange, CIIA/CEFA Economist
All DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main 2017
Reprinting and reproduction requires the approval of DG HYP
disclaimer This document has been published by DG HYP – Deutsche Genossenschafts-Hypothekenbank AG, Hamburg. This document has been prepared by DZ BANK AG Deutsche Zentral-Genossenschaftsbank („DZ BANK“) and is intended for distribution within the Federal Republic of Germany. This document is not intended for persons having their domicile and/or registered offi ce and/or branches outside Germany, particularly in the United States of America, Canada, the United Kingdom or Japan. This brochure may only be distributed outside Germany in compliance with the laws and regulationsapplicable in the relevant country. Anyone gaining possession of this information or material must inform themselves of theapplicable laws and regulations and observe said laws and regulations. Nothing contained herein constitutes a public offer to buy securities or fi nancial instruments. This document constitutes an independent assessment of the relevant issuer and/or securities by DZ BANK. All assessments, expressions of opinion and statements contained herein are those of the writer and are not necessarily shared by the issuer or third parties. DZ BANK has obtained the information on which this document is based from sources that are considered reliable, but has not, however, verifi ed all of these documents. Accordingly, no representation or warranty as to the accuracy or completeness of the information or expressions of opinion contained herein is made by DZ BANK. DZ BANK shall not be liable for losses caused by the distribution and/or use of this document or any losses in connection with the distribution and/or use of this document. Investors are urged not to base their investment decision regarding securities or other fi nancial instruments on this document, but rather on personal discussions with an adviser and the relevant sales prospectus or information memorandum. Depending on the specifi c investment objectives, investment horizon, and fi nancial situation, any such recommendations may not suitable, in whole or in part, for individual investors. As trading recommendations are largely based on short-term market conditions, they may also confl ict with other recommendations made by DZ BANK. The recommendations and expressions of opinion contained herein are as at the date of this document. They may becomeobsolete as a result of future developments, without this document being amended accordingly.
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70 71 Main regional real estate markets in Germany | 2017
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72 Main regional real estate markets in Germany | 2017
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