The Frankfurt office market and Brexit

Interview with Dr. Stefan Mitropoulos

The Economics/Research division of the Hessische Landesbank (Helaba) headed by chief economist Dr. Gertrud R. Traud and author Ulrike Bischoff presented their his study on the Frankfurt financial center in October 2019. The results in detail:

  • First Brexit bankers arrived in Frankfurt
  • 31 foreign Brexit banks have chosen Frankfurt
  • Only a slight increase in bank employees by the end of 2021
  • Work needs to be done on the attractiveness of the financial center

Brexit bankers in Frankfurt – they really do exist. Brexit banks are now prominently represented in the cityscape of Frankfurt and have mostly rented offices in premium locations. In the meantime, 31 foreign Brexit banks from 14 different countries have chosen Frankfurt. A ranking of the European financial centers in favor of the foreign banks makes it clear: Paris (eleven), Dublin and Luxembourg (nine and eight) and Amsterdam (five) follow far behind Frankfurt. This is the result of Helaba’s current financial center study.

The Frankfurt office market continues to benefit from brisk demand for space and moderate construction activity, so that office rents rise and the vacancy rate has dropped to around 7%. The positive development should continue. The impulses from the Brexit banks contribute to this in the run-up to the EU exit. However, the increase in jobs in other service sectors is having an even greater impact. In view of a number of major project developments, however, there should be no real shortage of office space in the next few years.

SKYLINE ATLAS asked some questions about the Frankfurt office market to Dr. Stefan Mitropoulos, who works as head of economic and real estate analysis at Helaba and contributed to the Helaba financial center study.

Questions about the Frankfurt Office Market to Dr. Stefan Mitropoulos

Dr. Mitropoulos has been leading the economic and real estate analysis in research at Helaba Landesbank Hessen-Thüringen since 2009.

Michael Wutzke: It’s great that you took the time to answer our questions about the Frankfurt financial center. Do you see the effects of Brexit on the office market in Frankfurt?

Dr. Stefan Mitropoulos: Brexit already has and will continue to create additional jobs in Frankfurt’s financial district. This is accompanied by an additional demand for office space, especially in central locations. Numerous foreign banks have announced that some of their businesses will be relocated from London, and some have already been implemented. This process will continue over the next few years. However, consolidation in the banking world will continue at the same time and lead to a loss of banking jobs, so that the net effect of Brexit on the office market will be rather manageable.

The Frankfurt office market does not depend as much on the banking industry as is often assumed. From 2008 to 2018, the number of employees subject to social security in the city rose by more than 96,000, of which around half are office jobs. The financial service providers have not played a particularly large role in this. The Brexit therefore has a positive impact on the local office market – but rents continue to rise.

Dr. Stefan Mitropoulos

Michael Wutzke: What is currently driving demand in the Frankfurt office property market?

Dr. Stefan Mitropoulos: The demand for office space is directly related to the employment trend in office-related sectors. The financial service providers in Frankfurt only represent around 13% of the workforce. Also important for the office market are so-called scientific, technical and other economic services, the real estate industry, the public sector as well as information and communication. The development of employment in these sectors is closely linked to the general economic situation. After the dip in 2020, a recovery is emerging, so that overall office space demand in Frankfurt should continue to develop positively overall. The general trend towards large metropolitan areas is also intact – the Frankfurt office market benefits from this.

Michael Wutzke: How is the vacancy rate in Frankfurt developing?

Dr. Stefan Mitropoulos: The office vacancy rate in Frankfurt has shrunk in recent years from a peak of over 15% to currently only around 7%. The office vacancy rate is likely to drop a little further here. The fact that there are still no major bottlenecks on the Frankfurt office market will primarily be due to a number of project developments. In view of the well-filled development pipelines, it cannot be expected that the vacancy rate will fall in the direction of 2% to 3% in the next few years – as has already happened in some other top German locations. The Brexit-related additional demand will not change that. In the medium to long term, the trend towards flexible working without permanent office jobs could make itself felt in the demand for office space. Falling per capita office space could then stand in the way of a further decline in the vacancy rate.

Michael Wutzke: Thank you for the interview.

The interview was conducted in December 2019.

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