The major deals forecast for the first quarter of 2020 at the end of 2019 could only be partially realized. The office market in Beethoven's hometown started 2020 with a rental performance of 10,900 m². This modest rental result is also due to the coronavirus pandemic.
Bonn office market off to a slow start in 2020 – partly due to coronavirus
However, this is due more to the lengthy negotiations between market participants on various properties. Several large leases for rental space exceeding 3,000 square meters are nearing completion. Negotiations have been ongoing since the end of 2019.
However, we only consider the coronavirus (COVID-19) to be a significant influencing factor in the last few weeks of the first quarter of 2020. Prior to this, most contracts were concluded without any adverse effects and the coronavirus crisis had not yet had a direct impact. However, many ongoing lease agreements are still being focused on by tenants and landlords. New rental inquiries, especially in the segment above 1,000 square meters, are only being initiated to a limited extent due to the current market situation.
By the end of March, a total of 24 lease agreements had been concluded. Only three of these agreements secured new office space of 1,500 sqm or more. The largest single lease was in the Duisdorf/Hardtberg submarket. Here, one of the existing tenants, a public-sector user, expanded by a further 2,200 m² of rental space.
As a result of this lease and various other deals, the Duisdorf/Hardtberg submarket ranked first in the warehouse ranking at the end of the first quarter of 2020 (32.0 percent and 3,540 m² of leasing performance). The city center ranks second with a market share of around 23.0 percent and space take-up of approximately 2,500 m². The Bonner Bogen submarket ranks third with a take-up of just under 2,000 m² (18.0 percent). In the traditionally strong Bundesviertel district, only 1,100 square meters of office space has been secured with new leases to date. An increase is expected in the coming weeks, particularly for this submarket.
The vacancy rate rose by 0.5 percentage points compared with 2019 as a whole, representing a slight increase to 2.6 percent. A total of just under 104,000 m² of office space, regardless of quality, is currently available on the market. The increase in vacancies is due to the varying sizes of the vacant properties. It can be assumed that these spaces will be filled again in the near future, traditionally by tenants from the public administration sector. In addition, the total floor space of the market will increase further as the projects at Godesberger Allee 138 with 10,700 m² (Bundesviertel/ 100.0% occupancy rate) and the Soenneckenstraße 10-12 project with 6,200 m² (Nordstadt/ 79.0% occupancy rate) were completed in the first quarter of 2020.
At the end of 2019, the average rent was already only EUR 12.00/m². In the first quarter of 2020, it fell further to EUR 11.92/m². This is due to the mix of different property qualities. Many of the leases identified are still being concluded well below the EUR 10.00 mark. In the segment between 200 m² and 1,000 m² alone, the average rent is EUR 10.50/m². For leases with a size of 1,000 m² or more, however, the average rent is already back at EUR 14.90/m². In addition, the high level of prime and maximum rents of previous years has not yet been reached. At the beginning of 2020, the prime rent was EUR 16.48/m² and the maximum rent was EUR 17.71/m². The maximum and prime rents were achieved on the Bonner Bogen and in Bonn's federal district. We expect another increase in the first half of 2020, bringing the figures back above the EUR 20.00 mark.
Even at the end of 2019, it was very difficult to make a forecast for 2020. This is all the more true against the current backdrop of one of the biggest global crises (the coronavirus pandemic). Currently, demand has collapsed due to the contact ban imposed in Germany and the associated avoidance of viewings and personal appointments, and there is no end in sight to this situation. However, we at Larbig & Mortag are encouraged by the fact that the current lease negotiations are being continued by all parties in a goal-oriented and expeditious manner. The traditionally frequent requests from public administrative bodies in Bonn are still very dynamic at present. It can be assumed that the market will pick up significantly once the coronavirus crisis has subsided, as many companies will be facing changes. This may have both positive and negative effects on the market and is currently difficult for any real estate expert to predict. However, it is unlikely that the positive results of previous years will be achieved. Larbig & Mortag Immobilien has therefore also lowered its forecasts for the full-year results.
