JLL
Ralf Kemper - JLL
‘The market has reached a plateau in many cities, such as Berlin,’ Ralf Kemper, head of valuation and transaction advisory at JLL in Frankfurt, told REFIRE.
JLL’s VICTOR index, which tracks prime offices in Germany, grew by 2.3% in the third quarter to 173.6 points, JLL announced this month.
However, despite the increase, prices continue to plateau, according to the agency. Some markets fared better than others, though. Frankfurt’s banking distinct grew by 6.5% q-on-q to 171.8 points. Düsseldorf came second, up 2.6% to a new high of 149.3 points.
Other cities, notably Berlin and Munich, witnessed more muted growth. Berlin is up just +0.5% to 187.2 points, followed by Hamburg at 186.1 points (+0.1%) and Munich (+0.1%, 177.3 points).
‘The market has reached a plateau in many cities, such as Berlin,’ Ralf Kemper, head of valuation and transaction advisory at JLL in Frankfurt, told REFIRE. ‘The increase (in capital values) in those cities has slowed down significantly in the second half of the past year. We will see if yields compress further before the year end, although they can’t go much lower!’
Prime office yields are just 3% in Berlin, compared to 3.3% in Munich, 3.75% in Düsseldorf and 3.25% in Frankfurt, according to JLL. Frankfurt has performed particularly well over the last four quarters, up 25%, beating Berlin (+14.8%), Hamburg (+10.9%) and Dusseldorf (+9.4%). Bar Frankfurt, the figures are around average for Top 5 locations (+12.8%). Munich, on the other hand, has clearly slowed down, growing just 1.6% over the past four quarters.
‘Frankfurt’s office market has the most potential because - unlike Munich - it’s not fully-let,’ Kemper explained. ‘Its growth this year has been driven by a decrease in vacancy rates, a strong letting market and a decrease in the prime yield. In the first quarter, we thought that Frankfurt might lose pace but we saw in the second quarter that the market was doing well. Frankfurt’s score is now the highest it has ever been since we launched the VICTOR Index in 2003. I think Düsseldorf is playing catch-up. It’s a smaller market than the others, so it started at a lower level.’
The overall VICTOR index stands at 173.6 points today up from 130 in 2007. ‘I think we’ll continue to see good growth next year, assuming there’s no major shock, the economy remains stable and interest rates remain low. I think yields will stay where they are or compress slightly. Investor demand will remain very strong,’ Kemper added.
