VICTOR Prime Office Q1 2025

In the first quarter of 2025, the Victor Prime Office Performance Indicator moved almost sideways at +0.4%. The new indicator level thus stands at 167.9 points at the end of March 2025. Almost all performance parameters observed are virtually unchanged. Prime yields remained stable and only in Munich did prime rents increase. Only rents outside the prime segment moved in all locations - albeit in different directions - and influenced the change in the indicator.

*Total Return: observed annual performance of the indicator plus the expected returns on the cash flow (net-initial yield of the previous year)

In terms of performance compared to the previous quarter, the five locations show opposing trends: While Frankfurt, Hamburg and Munich continued the growth of the previous quarters, Berlin and Düsseldorf turned slightly negative. The Frankfurt banking district achieved the highest performance growth of +0.9% thanks to a strong increase in rents across the board. The new indicator level stands at 150.9 points. In the city on the Main, major lettings such as those by Commerzbank ensured a strong start into the year. The letting turnover of a good 200,000 square meters has not been reached in any quarter in the past five years. Munich city centre came in second place with a performance increase of +0.8% to 185.2 points. The main reason for this was the increase in prime rents. In Hamburg's prime location, slight increases in rents outside the prime segment helped to achieve growth of +0.7% to 183.1 points. In Berlin and Düsseldorf, letting activity remained modest and the negative impetus from the rental market resulted in a slight decline in performance. Berlin's prime locations lost -0.4% and achieved an indicator level of 180.6 points. At -0.5%, Dusseldorf also fell to last place in terms of the absolute new indicator score of 150.4 points.

Due to the overall positive quarterly performance over the past three quarters, Victor's annual performance across all locations remains positive and now stands at +1.5% (comparison of Q1 2025 and Q1 2024 indicators), following +0.4% in the previous quarter. Munich is in first place with +2.5% thanks to five quarterly increases, followed by Hamburg with +1.9% and Frankfurt with +1.2%. Berlin and Düsseldorf also recorded a year-on-year increase despite the current quarterly decline: In the capital, the indicator is +0.7% higher than in the first quarter of 2024 and in Dusseldorf's banking district by +0.6%.

In the office investment market, the transaction volume in the five property strongholds analysed here amounted to around €1.06 billion in the first quarter of 2025 and is therefore at a similar level to the final quarter of 2024 with around €1.09 billion. Without the sale of the Upper West in Berlin, however, the investment volume would be significantly lower and roughly comparable to the first quarter of 2024. Overall, a slight upturn in the office investment market was evident in the shape of increased pitch activity and Anglo-Saxon investors showed renewed interest in the office segment. It remains to be seen to what extent the increased uncertainty and volatility on the financial markets during the first quarter because of US trade policy will curb investment activity.

The office letting markets in the five cities presented a very varied picture. While Frankfurt recorded a record letting result, letting activity remained modest, particularly in Berlin and Düsseldorf. A total of around 618,000 square metres of office space was let in the five locations, which roughly corresponds to the quarterly average of the last five years. It is striking that the nationwide trend of rising vacancy rates is much weaker in the top locations of the cities analysed and that vacancy rates are even falling in some cases. This confirms the long-standing focus on the absolute top locations In view of the shortage of prime space in these top locations, further increases in prime rents are to be expected.

Indicator level Q1 2025
167.9 Points

Performance Q4 2024 / Q1 2025
0.4%

Indicator level Q1 2025
180.6 Points

Performance Q4 2024 / Q1 2025
-0.4%

Indicator level Q1 2025    
150.4 Points

Performance Q4 2024 / Q1 2025
-0.5%

Indicator level Q1 2025
150.9 Points

Performance Q4 2024 / Q1 2025
0.9%

Indicator level Q1 2025
183.1 Points

Performance Q4 2024 / Q1 2025
0.7%

Indicator level Q1 2025
185.2 Points

Performance Q4 2024 / Q1 2025
0.8%

Concept

Property markets exhibit cyclical fluctuations from which even the prime German prime office locations are not immune. The volatility of price performance emphasizes all the more how important a transparent market indicator is. In this context, JLL analyses the price development in the prime office locations of the cities of Berlin, Düsseldorf, Frankfurt, Hamburg and Munich. Holders of real estate port-folios and potential investors should be given the oppor-tunity to obtain greater transparency for clearly defined submarkets and identify developments and trends more quickly so they can act accordingly. The indicator analyses the following submarkets, which have a total area of approximately 12 million sqm:

• Berlin – Charlottenburg / Mitte / Potsdamer Platz und Leipziger Platz

• Düsseldorf – Banking district

• Frankfurt – Banking district

• Hamburg – City centre

• Munich – City centre

In these submarkets, the price development of the lettable office space stock is analysed. The analysis identifies the changes in value of the office space stock and reflects the performance (capital growth) over time. In the overall analysis (VICTOR Top-5), the price development of the abovementioned prime office markets was averaged (unweighted). As a result of the differing amount of existing office space and the differing value levels in the individual submarkets, these values were considered with a 20% weighting in the Top-5 Indicator.

Since 31 December 2003, the indicator has been calculated on a quarterly basis and will continue to be updated on a quarterly basis in the future. The short observation intervals provide an adequate picture of short-term market fluctuations and a realistic portrayal of current market trends. In this regard, the Valuation Performance Indicator VICTOR is a valuable benchmarking tool and a trend barometer for the analysed submarkets.

Methodology

The market valuation of the submarkets, based on the effective date, is carried out according to international valuation standards and is based on the JLL database. The assumptions in the model relate to real market data as well as the assessment of JLL professionals. In the model, we refer to an assumed fixed space inventory in the submarkets, actual vacancy rates as of the effective date and different quality proportions. This ensures a real-istic picture of the letting situation and temporal compara-bility of the indicator values. The calculation is based on a discounted cash flow model, which takes into account all valuation parameters relevant to market standard.

Inflation expectations, as well as the market rental growth anticipated by JLL, are explicitly considered in the analysis. The growth of the contractual rents was adjusted on the basis of market standard, assumed indexation regulation and the real inflation rate. The market rents of the prime office locations are analysed by JLL on a quarterly basis and incorporated into the model. The contractual rents are determined over a historic time series, so that a statement about the respective over / underrent status can be made. In addition, explicit ongoing building costs, letting costs and rental incentives as well as estimated void and reletting periods are considered in the cash flow.

Authors

Dr. Andreas Dickert, Team Leader Operations Management

Ines Lippolt, Director Operations Management

Contact us

Our contacts:

Valuation:
Ralf Kemper, EMEA Head of Office & Retail, Lender Services

Research:
Helge Scheunemann, Head of Research Germany

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