The Munich office lettings market continued to show solid growth in the third quarter. Take-up over the first nine months totalled 467,600 square metres, 18 per cent higher than in the same period last year. Tenants continued to be selective, focusing on high-quality, well-connected premises. The property investment market recorded a higher transaction volume of €1.88 billion than in the same period last year, but remained characterised overall by a challenging environment and cautious institutional capital. These are the findings of a recent analysis by the global property services firm CBRE.
Office lettings market
The volume of space let in the third quarter was slightly lower than in the two preceding quarters. Nevertheless, the higher total figure for the current year compared with the previous year underlines the generally positive demand situation in the Munich office lettings market.
Just under a third of turnover came from major deals involving more than 5,000 square metres, the number of which rose slightly compared with the previous year. Owner-occupiers also made a significant contribution to this. Overall, however, turnover was predominantly generated in the small and medium-sized space segment. The market is currently characterised by strong quality-oriented demand from tenants, but also by a high degree of cost sensitivity. Consequently, Grade A space accounted for more than half of total turnover in the first nine months – including numerous project lettings. Grade B space also accounted for a high share of turnover, at over 40 per cent, thereby underlining its importance in the Munich office market. Outdated premises in out-of-the-way locations with poor transport links, on the other hand, are seeing hardly any demand.
“The Munich office market remains stable, with positive trends, though these are not equally evident across all locations and property grades. Tenants scrutinise location, facilities and overall costs very closely. Modern, flexible spaces with good public transport links are also in demand outside the city centre, provided the value for money is convincing and the overall package fits with the company’s strategy,” says Georg Illichmann, Head of Office Leasing Munich at CBRE.
The upward trend in rents continued. The achievable prime rent rose to 62.50 euros per square metre per month at the end of the quarter, reflecting the sustainable achievable rent level in Munich’s premium segment. The average rent also rose slightly to 27.48 euros per square metre per month. Overall, the growing price disparity between central locations and the outskirts, as well as between high-quality and outdated properties, continued.
The vacancy rate across the market as a whole rose to 8.6 per cent. The situation remains particularly challenging for older existing premises in poorly connected locations outside the Mittlerer Ring. Even prime space in new-build properties is available for short-term letting, though mostly in locations where demand is lower. In the CBD, the supply of high-quality space remains tight. The subdued volume of new construction further limits the urgently needed short-term increase in supply here.
Property investment market
“Investors are focusing on property quality, robust cash flows and established locations. Capital is generally available. However, deals continue to fall through frequently due to differing price expectations between buyers and sellers,” says Peter Tomas, Head of Investment in Munich at CBRE.
The Munich investment market continues to face a challenging market environment, which is having a restrictive effect on ongoing processes and the level of transaction volume. Despite a higher investment volume compared with the previous year, market activity remained subdued when measured against long-term levels. Investor caution is particularly evident in the case of large-scale office properties. This selectivity relates not only to location and quality but also to the size of the property.
Whilst individual office transactions – such as those at Karolinenplatz or in Sonnenstraße – are providing some impetus, they remain exceptions in a market environment characterised by caution, particularly on the part of institutional investors. The majority of investors involved were from Germany. However, international investors are also exploring the market for attractive investment opportunities.
The range of properties on offer remains extensive. Numerous transactions are currently in the initial stages, including existing properties with development potential and several major development projects. However, sales processes continue to be protracted in most cases. In addition to high-quality properties in central locations, investors are also exploring opportunities for value enhancement and repurposing in properties in outlying areas.
At the end of September, the prime yield for core office properties in Munich remained unchanged at the previous quarter’s level of 4.40 per cent. “The conditions on the capital markets have changed recently. Against this backdrop, we expect the prime yield to rise moderately again in the coming quarters,” says Beatrix Pillmayer, Senior Director of Valuation Advisory Services at CBRE.
Outlook for the rest of the year
“The generally robust demand and the ongoing enquiries reinforce our forecast of a take-up of around 600,000 square metres for the full year 2026. The annual result will depend in particular on which major deals are still concluded in the fourth quarter,” said Illichmann.
Users’ focus on quality – in terms of both fit-out standards and location – will continue to shape demand for high-quality space. Further rent growth is expected, particularly in central locations. The rise in prime rents is likely to be more pronounced than that of average rents. At the same time, high construction costs and challenging financing conditions are limiting the development of new office projects.
Capital for property investment remains available on the investment market. However, investors are being extremely selective. The Munich market offers potential, particularly in high-quality office properties and development projects in central locations, due to rents continuing to rise.
“The deal pipeline is well-stocked and offers the prospect of a stronger fourth quarter. However, many processes have been ongoing for some time. It remains to be seen whether the transactions will be completed by the end of the year or carried over into the coming year,” comments Peter Tomas. It is therefore not currently possible to provide a reliable forecast for the investment volume at the end of the year.
