Economic environment

Macroeconomic environment

The economy is in a deep crisis

Both national and international economic growth are crucial for an international air traffic hub such as Munich Airport.

The global economy is in a deep crisis as a result of the Corona pandemic. Growth in the global economy in 2020 was significantly lower than had been forecast in the previous year. According to calculations by the ifo Institute, global real gross domestic product (GDP) fell from +2.6 percent in the previous year to -3.6 percent. This decline was significantly greater than during the 2008/2009 global financial crisis.1

The economies of the emerging markets contracted at a comparatively low rate of 1.2 percent overall (previous year: +4.7 percent). India, however, recorded a 9.4 percent decline in GDP due to very weak private consumption and a sharp drop in investment as a result of the crisis. By contrast, the economy in the People’s Republic of China recovered very quickly after the shutdown at the beginning of the year, making a significant positive contribution. The GDP growth rate was +1.9 percent (previous year: +6.1 percent). Existing trade conflicts with the United States were to some extent defused by the signing of a partial agreement in January 2020.2

In the industrialized nations, economic output slumped by 5.2 percent as a result of the crisis. Private consumption and industrial production fell significantly during the course of the crisis. The US economy recovered more quickly than expected from the sharp downturn in the first half of the year. Overall, economic output fell by 3.6 percent in 2020. Above all, unemployment increased sharply during the period under review. By contrast, GDP in the UK slumped the most, by 11.3 percent. Restrictions affecting public life were introduced there comparatively late and had to be maintained for longer. By contrast, unemployment rose only slightly, as short-time work benefits were introduced in March.3 In addition, a «hard Brexit» could be avoided. The UK and the EU agreed on a trade deal on December 24, 2020. The introduction of customs duties and quantitative restrictions on the reciprocal movement of goods is not planned. Important trade barriers could therefore be averted.4

Economic growth in selected destinations worldwide

In %

Economic growth in selected destinations worldwide (bar chart (horizontal))
GDP growth in 2019 and 20205

In the euro zone, the GDP decline for 2020 was -7.4 percent, 8.7 percentage points below the previous year’s figure. Restrictions to contain the Corona pandemic led to a deep slump in economic output in the second quarter. There was a significant recovery in the third quarter following the gradual easing of government measures from May onward. Private consumption, investments as well as imports and exports all declined significantly despite the easing. In response to the Corona pandemic, the European Central Bank (ECB) had increased its expansionary monetary policy by stepping up bond purchases over the course of 2020. The interest rate level remains historically low. The increase in the unemployment rate in the euro zone was moderate at 8.0 percent (previous year: 7.6 percent), as economic policy measures were introduced to temporarily protect jobs.5

Economic growth in selected destinations throughout Europe

In %

Economic growth in selected destinations throughout Europe (bar chart (horizontal))
GDP growth in 2019 and 20205

The German economy contracted by 5.1 percent in 2020 (adjusted for calendar effects 5.4 percent). As a result of the Corona pandemic, there was a historic decline in economic output during the second quarter. Following the easing of restrictions, the German economy recovered faster than expected in the third quarter. However, the recovery was temporarily halted by measures starting in November 2020. These affected the services sector in particular (the hospitality industry, transport and travel services, culture, entertainment and recreation). As a result, private consumption collapsed by 5.6 percent by the end of 2020. Imports and exports also recorded sharp overall declines of -8.7 percent and -9.7 percent respectively as a result of the crisis. By contrast, construction investment increased in 2020, continuing to be driven by the low interest rate (+2.1 percent). The labor market was comparatively stable due to the extensive use of short-time work benefits. The unemployment rate increased by only 0.9 percentage points to 5.9 percent.5

The oil price (Brent) fluctuated between USD 17 and 70 per barrel. The peak was reached before the outbreak of the Corona virus pandemic at the beginning of the year. Oil prices bottomed out in late April 2020 and rebounded to about $51 per barrel by year-end.6

Economic environment Aviation

Global drop in air traffic by two thirds

In the various countries around the world the airlines reacted to the lockdowns and the associated travel restrictions with massive reductions in capacity or even complete shutdowns of their services. Almost no airline will survive the crisis without government support programs. The Air Transport Action Group (ATAG) estimates that some 46 million jobs in the industry are at risk.7 According to International Air Transport Association (IATA) analysis, passenger numbers recovered slightly after the initial lockdown in late March and April 2020, driven primarily by the vacation seasons. In the meantime, development has stagnated again due to renewed restrictions with the second lockdown in Germany, amongst other countries.8

The global traffic slump is devastating, with a 65.9 percent drop in passenger revenue kilometers.9 International passenger traffic was affected in particular (-75.6 percent), since all countries had different pandemic-related travel warnings and restrictions, resulting in a huge drop in passenger demand. By contrast, domestic traffic proved more resilient in several countries, reaching pre-crisis levels by the end of the year in China, for example.10

Research by IATA found that air travel was booked in 2020 when it was possible to do so.11 Only some of the potential passengers were deterred from traveling by a possible risk of infection on board. It was found that this risk is low compared to other modes of transport and activities. The risk of not being able to return home from the destination or having to go into quarantine had more of a deterrent effect. The uncoordinated and short-term changing global restrictions contributed to further uncertainty.

By contrast, the demand for freight-only services increased in 2020, driven by the sharp decline in additional loading capacities on long-haul passenger routes. However, total freight ton kilometers in the air freight sector decreased by 10.6 percent. Studies show that in the late summer of 2020 approximately 26 percent of freight capacity was lost between Europe and Asia and approximately 40 percent between the USA and Europe. Globally, the capacity available decreased by approximately 20 percent. This led to a sharp increase in intercontinental freight rates.12

The airports organized in the German Airports Association (ADV) recorded Corona-related declines on average in 2020. Commercial passenger traffic (inbound/outbound) decreased by 74.6 percent overall. At -54.9 percent, aircraft movements were significantly below the previous year’s level. Similar to the global freight volume, cargo handling (sum of airmail and freight excluding transit) declined only slightly by 4.2 percent. This was due to the positive trend at the end of the year as trade flows stabilized.13

In its report on the state of the industry, the German Air Transport Association (BDL) highlights the impact of the Corona pandemic on air transport, which threatens the very existence of the industry. Globally, traffic slumped by two-thirds in 2020 compared to the previous year. International traffic, on which European airlines in particular rely, was especially hard hit; at approximately -69 percent, they therefore recorded the biggest drop in traffic – measured in passenger kilometers – together with Middle Eastern airlines (approximately -71 percent). German airlines were hit even harder, recording a 76 percent drop in passenger kilometers and carrying only 40 million passengers (approximately 25 percent of the previous year’s volume).14

Similar to the German airlines, German airports as a whole recorded a major drop in traffic. Only 63 million passengers (-75 percent) were handled in 2020; aircraft movements fell by 60 percent. The air freight segment was the least affected, recovering after the slump in the spring and even achieving positive growth rates again from September 2020. This was driven by the all-cargo segment. In contrast, airports with a strong focus on bellyhold cargo, such as Munich Airport, continued to record negative growth rates.14

Sector-specific environment for Commercial Activities

Retail experiences a year of extremes

Despite the Corona pandemic, the German Retailers’ Association predicts year-on-year sales growth of 5.7 percent to €577.4 billion compared to the previous year. Most of this growth will come from online retailing (2020: +20.7 percent), as well as grocery, home improvement, and bicycle sales. The remaining over-the-counter retail trade is suffering due to the corona-related restrictions and closings, which have been in place again since December 16, 2020. The fashion trade in particular lost almost a quarter of its sales.15

The retail business climate has deteriorated. Companies are not satisfied with the current situation and expectations are also gloomy. Nevertheless, the business climate index rose slightly by 0.3 percent.16

Gastronomy and hotel industry – unprecedented drop in turnover

The hospitality industry is experiencing unprecedented declines in turnover as a result of the Corona pandemic. In the hotel sector, the decline in turnover was 47.5 percent, which represents a price-adjusted decline of 39.0 percent. This industry has been in lockdown again since November 2, 2020. Only overnight stays by business travelers are allowed, but hardly ever take place, as well as take-away sales of food.17

A real decline in turnover of 35.3 percent was recorded in the gastronomy sector. A detailed examination reveals a more nuanced picture: during the lockdown months, only picking up or the delivery of food was allowed. Catering establishments that had relied on this type of business before the crisis were able to maintain or even increase their sales. Other businesses began offering the delivery and takeaway service for the first time, taking advantage of the only option for revenue.17

Catering also fell sharply by 34.2 percent as large events were prohibited in 2020.17

Advertising industry – outdoor advertising proves itself to be crisis-resistant

As a result of the crisis, advertisers cut or postponed their budgets across almost all media in 2020. For this reason, their gross advertising expenditure of 34,325 million euros was below the previous year’s level. The advertising category used primarily at Munich Airport is out-of-home advertising. The gross advertising expenditure in this area fell slightly by 6.7 percent compared to the previous year. Outdoor advertising thus performed significantly better than predicted.18

Parking management – dependence on passenger volume

The decline in passengers due to the pandemic has had a major impact on the parking business. Even though the proportion of trips made in private cars increased for reasons of hygiene, the overall volume of trips was significantly lower due to the restrictions placed on mobility.

Economic environment Real Estate

Munich office market with lowest floor-space turnover since 2009

In the Bavarian state capital of Munich, the office leasing market is being defined by the pandemic. The fourth quarter of 2020 saw the first floor-space turnover of less than 100,000 square meters in over 20 years. Overall, floor-space turnover was 567,800 square meters for 2020, the lowest level since 2009 and about 26 percentage points below the previous year’s figure of 770,400 square meters. Owner-occupants contributed 55,500 square meters, or about 10 percent of the total, resulting in a leasing-only turnover of only 512,300 square meters.19

Despite the difficult situation, market activity continues to be characterized by the low supply of space. Vacancies rose by approximately 300,000 to 787,900 square meters compared with the previous year, but this did not change the fundamental situation of a shortage of space. Overall, the vacancy rate was 3.5 percent, 2.8 percent in the urban area and 5.5 percent in the surrounding region. A good 100,000 square meters were sublet space. In some sub-markets within the central ring, the vacancy rate was still well below 2 percent.19

The average rent for office properties in Munich was 21.50 euros/m2, an increase of 7 percent over the previous year’s figure of 20.10 euros/m2. High-priced major deals in the first half of the year were a key driver of this increase. The average rent in the surrounding area also increased to 13.10 euros/m2 (2019: 12.30 euros/m2). By contrast, the prime rent remained unchanged at 39.50 euros/m2.19

In 2020, 276,500 square meters of office space was completed, with an occupancy rate of 93 percent by year-end. Approximately 485,800 square meters are expected to be completed in 2021, with an occupancy rate of 56 percent. 515,000 square meters, which is expected to be completed starting in 2022, is already 59 percent leased or owner-occupied. This clearly indicates that construction activity is at a higher level than in previous years. The Munich market is quite capable of absorbing this space, but given the current lower level of demand, it is likely that marketing times will again be longer.19

Many users of office space are waiting until the situation becomes a bit clearer in terms of development and/or for the results of their analyses regarding any necessary changes to the office work environment. Nevertheless, floor-space turnover of approximately 600,000 square meters appears feasible in 2021, since there are still a number of large-scale applications on the market. In the medium term, the decisive factor will be the extent to which new construction space is absorbed by the expected economic improvement in tandem with an increasing home office ratio. The Bavarian state capital of Munich boasts of many positive location factors and will therefore continue to be extraordinarily attractive in the long-term.19

1 ifo Institute, Economic Forecast Winter 2020, December 2020; website www.bpb.de, January 2021

2 International Monetary Fund, World Economic Outlook, October 2020; ifo Institute, Economic Forecast Winter 2020, December 2020; website https://www.tagesschau.de/wirtschaft/china-usa-zollstreit-101.html, January 2020

3 ifo Institute, Economic Forecast Winter 2020, December 2020; German Council of Economic Experts, Annual Report 2020/21, November 2020.

4 Website https://ec.europa.eu/germany/news/20201224-brexit-abkommen_de, December 2020

5 ifo Institute, Economic Forecast Winter 2020, December 2020

6 Website onvista, January 2021

7 ATAG, September 2020

8 IATA, Economics’ Chart of the Week, January 8, 2021

9 IATA, 2020 Worst Year in History for Air Travel Demand, February 3, 2021

10 IATA, Air Passenger Market Analysis, December 2020

11 IATA, Covid-19, November 4, 2020

12 www.aircargonews.net as of October 26, 2020; IATA, Air Cargo Market Analysis, December 2020.

13 ADV, ADV Monthly Statistics 12/2020, February 2021

14 BDL, 2020 Annual Balance Sheet, February 2021

15 HDE, Press Release, February 2021; HDE Economic Info, September 2020

16 ifo Institute, Business Climate Germany, December 18, 2020

17 DEHOGA, Press Release December 2020, February 19, 2021

18 Market Research Company Nielsen, Balance 2020, January 21, 2021

19 Colliers International, Press Release, January 2021

German Airports Association (ADV)
The umbrella organization of all passenger airports in Germany, Switzerland, and Austria. The organization works to promote Germany as a strong and competitive center of aviation.

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