2018 was a very special year for us. Larbig & Mortag celebrated its 10th anniversary. We would like to thank all our companions and look forward to continuing our collaboration with you.
Our forecast of 120,000m² of office space brokered by the end of the year was exceeded, as 2018 turned out to be a record year. The largest single lease of recent years was signed at the beginning of the year, and prime and maximum rents are at their highest levels ever.
Despite all the euphoria about the top figures achieved, a critical eye must be cast on the persistently low vacancy rate. This continues to fall, and even the seemingly large number of new developments cannot meet the sustained high demand for office space. The decisive factor in this situation is that the new developments on the market were fully let before completion. In addition, unfortunately no new office space was completed in 2018.
Bonn remains one of the most attractive locations for tenants from the public administration and service sectors. This is underscored by two leases signed by the German Aerospace Center (DLR). Our team was able to broker approximately 15,400m² of office space for the DLR in two different new construction projects.
An interesting development is in the pipeline for the former government district. An initial concept proposal was drawn up during the course of the year, which aims to combine residential and commercial use of the space. The low level of completion of new construction and the resulting vacancy rate were also discussed as part of this process. The development of the Bundesviertel submarket remains exciting.
If you have any questions about commercial real estate, please do not hesitate to contact us. We look forward to providing you with further information.
Brief overview of the entire year 2018
City comparison
The federal city of Bonn can be proud of its record result in a nationwide comparison of cities. Although the rental income of the cities included in the comparison is significantly higher, these markets also have a larger office property portfolio. In terms of vacancy rates and the resulting vacancy ratio, the city of Beethoven is once again among the front runners. Among the top seven cities, only the capital Berlin had a lower vacancy rate at the end of 2018, at 1.50 percent. In terms of prime rents, Bonn outperformed the comparable cities of Cologne and Leverkusen in the Rhineland.
2018 – the year of records
Following record results in the first half of 2018, the highest office rental result in the last ten years was recorded at the end of the year. A total of 124,300 m² of office space was let in the course of 2018. Compared to 2017, this represents an increase in brokerage performance of around 26.00 percent (2017: 98,500 square meters). In addition to the consistently positive letting figures, the other key figures for the Bonn office market also remain at a very high level. At the end of 2018, the prime rent was EUR 22.33/m² (2017: EUR 20.33/m²), and the highest rent was EUR 24.00/m² (2017: EUR 21.75/m²). Only the average rent rose modestly, closing the year at EUR 12.40/m². Compared to the previous year (2017: EUR 12.22/m²), the average rent increased by EUR 0.18/m². The modest increase in average rents is attributed to the fact that more than half of the contracts evaluated were concluded with rental terms below the average rent.
Postbank deal dominates
The decisive factor for the record result remains the lease agreement with Postbank, which was signed at the beginning of 2018 for Art Invest's Neuer Bundeskanzlerplatz project, with around 40,000 square meters of office space leased. In addition to Postbank, other well-known users also signed lease agreements. In mid-2018, DLR secured around 4,630 square meters of modern new space in the "Haus der Höfe" project and was also able to lease a new development on Godesberger Allee with a total of 10,766 square meters of office space as a single tenant. With two further leases of 6,367 m² and 6,000 m² in Bonn's federal district, the public administration confirmed its status as the largest source of demand on the Bonn office market.
Many leases starting at 1,000 m²
In addition to large deals of 5,000 m² or more, a total of 14 lease agreements between 1,000 m² and 5,000 m² were concluded. Until 2017, lease agreements for 1,000 m² or more were not yet available at this frequency. This statement underscores the attractiveness of Bonn as a location and the good economic situation of the companies looking for space. Expansion space is often part of new leases, which is a further consequence of the shortage of space. In this way, companies are already securing space for future growth. The leases identified for up to 5,000 m² of office space account for 36,470 m² (2017: 23,571 m²) or just under 29.30 percent of the year-end result. In addition to the lease of the German Aerospace Center, other interesting leases in this segment include the lease of a service company with around 2,800 square meters of space ("Urban Soul") and the lease of Engangement Global gGmbH with approximately 5,000 square meters ("Bonnjour").Urban Soul") and the lease to Engangement Global gGmbH with around 5,000 m² ("Bonnjour").
Deals over 2,000 m² doubled
Compared to 2017, leases in the segment between 2,000 m² and 5,000 m² almost doubled. While there were a total of five leases (18,235 m²) in this segment in 2017, a total of eight leases with around 27,300 m² were recorded in 2018. This represents an increase of approximately 9,100 m².
Space under construction is particularly popular
As we already mentioned in our mid-year report for 2018, companies looking for space are increasingly focusing on planned or under construction office buildings. With approximately 63,000 m² of office space brokered, slightly more than half of all leases were signed for properties that are not yet completed. The Postbank deal certainly plays a decisive role in this statement, but in addition to this lease, six further leases were concluded during the course of the year in new buildings currently under construction or planned project developments. This situation highlights the growing imbalance between current demand and the available space on offer. Companies looking for space are increasingly having to focus on the issue of recruiting employees and naturally need an attractive working environment and modern office space to do so. The majority of existing buildings currently available in sought-after locations on the Bonn office market are unable to meet this demand. As a result, existing buildings with modern and attractive office space are already being examined very carefully by interested parties with a lead time of between 12 and 24 months before they become available. It is not uncommon for a single available property to attract many different serious prospective tenants, from whom the landlord can choose freely. Incentives such as rent-free months or construction cost subsidies, which were common a few years ago, are now rarely included in rental agreements, even for long-term leases.
Critical vacancy rate
The free fall in the vacancy rate continued unabated in the second half of 2018. The vacancy rate fell dramatically by a further 0.24 percentage points compared with the first half of the year, standing at 1.60 percent at the end of 2018. Compared with 2017 (2.50 percent), the vacancy rate fell by almost a full percentage point. If the vacancy rate is calculated based on square meters, the vacancy rate decreased by 33,200 square meters compared to 2017 (95,200 square meters). It should be emphasized that base vacancies are not taken into account when considering the critical vacancy situation. The very low vacancy rate often forces prospective tenants to compromise on the key criteria for their desired rental property. As a result, locations that were not initially considered by companies are increasingly being examined. However, it should be noted that locations outside the city limits of Beethoven's hometown are usually ruled out, even with increasing space shortages. Many of those looking for space still see themselves as local companies with strong ties to Bonn. Changing the city name in the address field is therefore not an option.
The office location Bonn Beuel is a prime example of the critical vacancy situation in 2018. This office location was popular with many companies across all size categories in 2018. Available space in the range up to 1,000 m² was quickly re-let. However, the location offers no alternatives for larger requests of up to 5,000 m² of office space – but demand is sufficient. It is therefore to be welcomed that LANDMARKEN AG has acquired the property at An der Kuppe 2, which is leased until summer 2019, and will add it to the Bonn office market after revitalizing the space.
The continuing strong demand on the Bonn office market and the low office vacancy rate are indications that the revitalization or new construction of modern office space will be well received by the market even without a pre-letting rate. A prime example of this is the start of construction on the Godesberger Allee 138 project development with around 10,800 m², which was leased by the sole tenant, the German Aerospace Center, 12 months before completion.
Industry distribution TOP 3
The record lease signed by Postbank at the beginning of 2018 also had an impact on the industry ranking. The industry, which had been rather cautious in recent years, took second place in the industry distribution with 40,000 m² and a market share of 32.20 percent (2017: 1.50 percent). The public administration sector, which was still in second place at the end of the first half of the year, ended 2018 back in first place thanks to a strong second half of the year. With floor space sales of 50,284 m² and a market share of 40.40 percent, public administration confirmed the positive results of the previous year (2017: 41,005 m² floor space sales and 41.60 percent market share). The service sector came in third place in the 2018 ranking with 8,109 m² and a 6.50 percent market share.
Submarkets
Location ranking
During 2018, initial proposals were submitted for the future of the former government district. The federal district is once again dominating the office market in Bonn. A total of 89,800 m² (2017: 21,879 m², 22.20 percent) of the total annual result was leased in the federal district in the course of 2018. This corresponds to a percentage share of 72.20 percent. The main reasons for the positive result include the availability of office space, six large lease agreements for 4,000 square meters or more, and the attractive infrastructure of the location, which has been further optimized by the creation of the new DB UN Campus train stop. and the attractive infrastructure of the location, which has been further optimized by the creation of the new UN Campus DB train stop.
The traditionally strong inner city location finished 2018 in second place in the warehouse ranking. In the submarkets of Zentrum, Nordstadt, Südstadt and Weststadt, 20,897 m² (2017: 54,361 m²) or around 16.81 per cent (2017: 55.20 per cent) of the total rental performance was agreed under rental agreements. As in the previous year, Bonn's Nordstadt district was the submarket with the highest turnover, with 9,881 m² (2017: 30,404 m²) of rental space brokered.
As in previous years, Bonn Bad Godesberg ranks third. With 6,673 m² (2017: 13,808 m²) of office space brokered, it achieved a market share of 5.40 percent (14.00 percent). In 2018, another large lease of around 2,200 m² was signed in Bad Godesberg. However, this did not repeat the good result from 2017, which was achieved through the large-scale lease of approximately 10,500 m² to a public administration agency.
Many cranes – low availability
Compared to the previous year (2017: 15,100 m²), significantly more space is again under construction, at around 82,700 m². This is the highest figure in the last five years. However, the big caveat here is the amount of space available in the projects after completion. The "Urban Soul" project offers an additional 1,300 m² of multifunctional space on the ground floor, and approximately 527 m² can be leased in the "Adenauerallee 206" project upon completion. The remaining space under construction is being built for own use (approximately 42,700 m²) or has already been fully leased prior to completion. These include the "Haus der Höfe" project with 7,200 square meters and the "Godesberger Allee 138" project with 10,766 square meters of office space. The first construction phase of the Rhein-Palais on Bonner Bogen will be completed at the end of 2019 with 14,300 m². There are various interested parties for the new space, and most of the first construction phase will be leased by the beginning of 2019.
Outlook for 2019
Whether the high figures of 2018 can be achieved again in 2019 depends on changes in the vacancy rate. A small number of new spaces will be available on the market in 2019, which will be quickly snapped up by the Bonn office market due to high demand. Driven by the aforementioned situation, prime and maximum rents will remain at a high level in 2019. The availability of this space is expected to be too low to lead to a significant increase in average rents. As in previous years, the majority of leases will be concluded in the range up to EUR 12.00/m². In addition to the far too low completion rate, the quality of the existing properties available on the market is the main reason for the rental prices at the aforementioned level.
For the overall rental performance, a maximum of up to 90,000 m² of office space can be expected to be brokered. Various large-scale requests are currently on the market. The space at the Zurich locations will come onto the market in the course of 2019. New tenants will also be found for this space in the near future. It remains to be seen how many leases will be concluded for the projected space. Many of the new construction projects will not be completed for several years. The fact that the federal city of Bonn urgently needs new construction space was also addressed by Bonn's city planning officer, Mr. Helmut Wiesner, during the disclosure of the concept proposal for the former government district. The city planning officer said that the federal city of Bonn could accommodate 100,000 square meters of gross floor space per year.
Demand remains high, and it is becoming apparent that, particularly in the 1,000 m² range, it will not be possible to meet this demand with properties of the desired quality. Many of the vacant spaces, which are prestigious and modern in character, are attracting interest from numerous potential tenants.
The excessively low vacancy rate is affecting all areas of the Bonn office market. This situation can only be remedied in the coming years through new construction and the revitalization of existing properties. In order to prevent companies from leaving Bonn, it is absolutely necessary that the number of available office spaces increases.
Download the Bonn office market report now as a PDF: Bonn office market report 2018 (3.2 MB)
