How does Larbig & Mortag view the office market in Bonn? It was already clear at the beginning of the year that 2018 would be an extremely good year for leasing. The large-scale lease to Postbank in Bonn was announced in January 2018. Postbank is leasing around 40,000 square meters of office space in the new "Neuer Kanzlerplatz" development, which will be ready for occupancy in 2021. This lease ensures a record result for the first half of 2018 and is one of the largest and most significant leases on the Bonn office market in the past five years.
speaking of years: Our company also celebrated a remarkable milestone in the first half of 2018. After our head office was founded in Cologne by the two managing directors Markus Larbig and Uwe Mortag in March 2008, we are very proud to be celebrating the tenth anniversary of Larbig & Mortag Immobilien this year. Mortag Immobilien. Our Bonn branch underwent a significant change. At the beginning of 2018, the Bonn location became independent as Larbig & Mortag Immobilien Bonn GmbH and celebrated its fifth anniversary in April 2018.
The Bonn office property market has become much more attractive across Germany, and many national real estate companies are recognizing the numerous opportunities offered by the Bonn office market. This is due to the consistently positive rental performance in recent years and the extremely low vacancy rate. For companies requiring modern space of 1,000 m² or more, real estate projects are now almost the only option, and even these are often fully let before completion. The supply of space in the 1,000 m² range is extremely low, and many companies are deciding to remain in their current premises, provided that this can be achieved through space optimization.
The trend toward business centers and co-working spaces that has been emerging throughout Germany in recent years has already arrived in Bonn and will become more of a feature of the Bonn office market in the future. Various providers are already established and are expanding steadily. Others are sure to follow. The main task of the Bonn office market remains to ease the vacancy situation. Speculatively constructed office buildings and extensive revitalization of older government buildings are urgently needed to achieve this. The lettings in the first half of 2018 show that this approach is bearing fruit."
Brief overview of the first half of 2018
City comparison
The federal city of Bonn performed very well in the nationwide city comparison with a half-year result of 88,300 m² of office space brokered. Although the result is far behind Germany's top office locations, the Federal Republic's second political center is on a par with them in terms of average and maximum rents. In terms of vacancy rates, the Bonn office market is one of the tightest in Germany, with a vacancy rate of less than 2.00 percent.
The office market – record results!
The first half of 2018 was a tough one. At the end of the second quarter of 2018, the Bonn office market achieved a rental performance of 88,300 m². In previous years, this level often represented the total annual result. The main factor here was the large-scale lease signed by Postbank for the "Neuer Bundeskanzlerplatz" project, which comprises around 40,000 m² of office space. At the beginning of 2018, the announcement of this lease deal already pointed to one of the strongest years ever for the Bonn office market. The full-year results for 2013 (75,000 m² of rental space), 2014 (65,500 m²) and 2015 (71,600 m²) have already been significantly exceeded by the half-year results for 2018. If the half-year results are reduced by the major deal, the positive and sustained letting trend of recent years remains evident.
Top deal with 40,000m2
In addition to the top deal with Postbank in the "Neuer Bundeskanzlerplatz" project, further large-scale lettings were also realized in the first half of the year. Around 59.30 percent of the half-year result comprises lettings of 5,000 m² of office space. In addition to leasing 6,000 m² of space to a public administrative agency on Langer Grabenweg, the Federal Ministry of Defense leased approximately 6,370 m² of office space on Godesberger Allee. These two leases alone account for 14.00 percent of the half-year leasing performance. It is also apparent that the majority of large leases in Bonn are being taken out by public sector users.
Leases between 2,000m² and 5,000m² guarantee revenue
Around 20.60 percent of the half-year results were generated by leases in the segment between 2,000 m² and 5,000 m². This amounted to a total of five leases. With 4,630 m² of office space brokered, the Haus der Höfe project was fully let at the end of the second quarter of 2018. The German Aerospace Center (DLR) is the new main tenant of the property. Two more of the five leases were signed with public sector users. Engagement Global gGmbH signed a lease for the completed Bonnjour project, and a federal ministry was secured as a new tenant for an office property on Hermann-Milde-Straße. At the end of 2017,onlythree lease agreements were concluded for properties between 2,000m² and 5,000m².The shortage of office space on the Bonn office market is also evident from the large number of leases in projects.
Deals between 1,000 m² and 2,000 m² are hampered by the availability of space
With a total of five leases in the segment between 1,000 m² and 2,000 m², a leasing performance of approximately 6,300 m² of office space was recorded. The half-year result is very positive, but the demand situation offers more potential overall. Modern, suitable and, in some cases, unusual office space – for example, for young, modern IT companies – remains in short supply in Bonn. The consistently positive letting performance and low completion rate in recent years have not contributed to any real easing of the vacancy situation. Good-quality space is being re-let very quickly.
Critical phase for applications requiring space of up to 1,000m2
At the end of 2017, 17 leases were still available in the 500 m² to 1,000 m² range. As of mid-2018, only seven lease agreements have been signed. The ongoing critical phase in vacancy rates is making it particularly difficult for companies to find office spacebetween 300m² and 1,000 m². In the first half of 2018, only 12 leases were signed in this segment. In the past, around 20.00 percent of the space in new construction projects in Bonn was still available, even after completion. This vacancy rate also enabled those looking for modern office space of up to 1,000 m² to find something suitable. During the project and construction phase, it is usually only possible to rent larger units. As a result, the Bonn office market saw only a limited supply of modern office space in the first half of 2018.
In the recent past, new construction projects were fully let even before completion, in some cases even before the official start of construction. Despite the continuing shortage of space on the Bonn office market, project developers rarely focus on speculative construction of office space. Pre-letting rates of 20.00 to 30.00 percent are often necessary for construction to start.
Vacancy rate: falls below the 2.00 percent mark
The vacancy rate continues to fall in 2018. In previous years, we have already highlighted the critical situation regarding the shortage of space in our reports, and this has not eased in the first half of 2018. With no further office space completed in the first half of 2018 and record letting results, this comes as no surprise. What is surprising, however, is the fact that the first construction phase of the "Rhein-Palais-Bonner-Bogen" project is almost complete and, despite the tense market situation with 14,300 m² of vacant office space, no lettings were recorded.
On the Bonn office market, the critical vacancy rate is causing companies looking for space to rethink their leasing strategy. In many cases, new leases are being signed for sufficient expansion space, which will be sublet until the planned expansion takes place. However, the lead time for finding space has also changed over the past 12 months. Many office users are now looking to relocate at an early stage, and the task is often to find new office space that can be occupied within 24 months.
The departure of local companies to surrounding cities such as Cologne, which is often feared in many places, has not materialized apart from one or two situations. The reason for this is often the local roots of the companies and their proximity to their main clients, such as Deutsche Telekom, Deutsche Post, etc. In addition, the Cologne real estate market is struggling with a shortage of space, which also makes it difficult to find office space in the cathedral city.
The situation is certainly expected to improve in 2020 and 2021. However, this will only be the case if the new office buildings currently in the planning stage can add office space to the Bonn office market once they are completed. To bridge this gap, it will be all the more important for Bonn to revitalize older properties and make them available to the market. A good example in the first half of 2018 was the property at Godesberger Allee 115-121, which is being completely renovated and will now offer the Federal Ministry of Defense, among others, around 6,000 square meters of modern office space.
Industry distribution TOP 3
The large-scale leasing by Postbank also had a significant impact on the sector ranking. In the past four years, the top of the sector ranking was dominated exclusively by public administration and the service sector. However, thanks to the record deal of 40,000 m² at the beginning of 2018, the banking and finance sector took first place in the industry breakdown at the end of the first half of the year with 45.30 percent. It was followed in second place by the public administration sector, which traditionally has a strong presence in Bonn, with approximately 31.50 percent. In total, around 28,000 m² Of office space was leased by public sector users. The top two sectors alone account for 76.80 percent of the total market, followed far behind in third place by associations/organizations as users with 9.20 percent.
Locations: Location ranking
At the end of the first half of 2018, the Bundesviertel (81.00 percent) was the most popular location on the Bonn office market by a wide margin. A total of 71,535 m² of office space was newly let in the Bundesviertel in the first half of 2018. Even if this figure is reduced by the large lease, the letting performance in the Bundesviertel alone, at around 31,500 square meters, almost matches the half-year results for 2014 (37,500 square meters) and 2015 (38,400 square meters).
Second place in the first half of 2018 was taken by the entire city center, consisting of the submarkets Zentrum, Nordstadt, Südstadt, and Weststadt, with 13.60 percent. As in previous years, Nordstadt is once again the location with the highest turnover (9.40 percent) in the city center. At the end of 2018, Bonn's city center will show a significantly more positive result, as various lease agreements that have already been concluded will become legally valid in the center of Bonn during the last two quarters of 2018. Bonn Bad Godesberg ranks third with a rental share of approximately 2.20 percent.
Construction: Many cranes – little available space for new construction
As of mid-2018, around 73,700 m² of office space is under construction. Of this, only 37,000 m² is available for external leasing. Approximately 7,200 m² of the 37,000 m² of new space is already fully let through the full letting of the "Haus der Höfe." Other properties currently under construction include the first phase of the Rhein-Palais on Bonner Bogen (14,600 m² - nearing completion), the "VICUS" property (Adenauerallee 206) with 2,967 m² and the new construction project at Godesberger Allee 138 (around 11,000 m²). In addition, construction work on the new GIZ office building with around 28,000 m² of office space is in full swing. The city office of the "Urban Soul – Dreiklang für Bonn" project, with around 4,800 m² of office space, will enter the construction phase in the second half of 2018 – but is already almost fully let.
Outlook for 2018
The record results for the first half of 2018 allow for an extremely positive outlook for the full year 2018. In addition to the leasing performance already achieved, there are a large number of requests for space exceeding 1,000 square meters, in some cases up to 10,000 square meters, on the Bonn office market. Traditionally, even larger leases are concluded with public-sector users in the second half of 2018. It was recently announced that the branch offices of the Federal Highway Authority are to move to Bonn. Based on these facts, we can expect a total of around 120,000 m² of office space to be let by the end of the year. The average rent will continue to rise, as we expect to see more leases signed for new construction projects. This will in turn have an impact on lease terms, as experience shows that project developers stipulate long-term leases of at least 10 years as a prerequisite for letting. The maximum rent is currently at a high level and will remain at a similar level at the end of 2018.
In the past 24 months, there has been an increase in the number of spaces being leased on a short-term basis of two to three years as a transitional solution. It will be interesting to see how the space that becomes available will be taken up by the Bonn office market. Past experience shows that office properties of recent construction generate very high interest and are quickly re-let. Whether these spaces will lead to a decline in the vacancy rate remains to be seen. Companies looking for space are adapting to the conditions of the Bonn office market, and it is therefore no longer unusual for space to be negotiated today for rental in two years' time. The space vacated by Zurich in Bonn city center and Bonn's southern district could ease the situation. However, this space will not be added to the Bonn office market until a later date (around 2020/2021)in order to restore a healthy market situation for landlords and tenants, it will continue to be necessary to supply the market with modern and, above all, affordable office space.
>> Download the Bonn office market report now as a PDF: Bonn office market report 2018 – 1st half-year (2.4 MB)
