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Office Space Market Cologne: Lack of space and increasing rents

Demand continues to be high, but Cologne’s office space market is running out of space. In their latest analysis of the first half of 2018, the real estate experts from Greif & Contzen report that rents are increasing, while the vacancy rate has dropped to less than three percent for the first time in 16 years.

“It is as though you are visiting a shop in a prosperous location, but the offerings available on the shelves are fragmentary or non-existent. There are customers that are willing to buy – prospective tenants in this case – as well as solvent investors, but there is a supply shortage,” says Florian Schmidt, Head of Office Properties at Greif & Contzen Immobilienmakler GmbH, when asked about the current situation of Cologne’s office space market.
If a coveted product does make it onto the shelves, customers are willing to spend a little bit more than in previous months, to seize the opportunity. “Supply shortage”, “decreasing vacancy rate” and “rising rents” are the key words that characterise Cologne’s office space market these days. The researchers from Greif & Contzen found that around 125,000 square metres of offices space were taken up during the first six months of the year. This figure is around 14 percent below the average of around 145,000 square metres taken up in comparable time periods over the past five years. The reason for this is not a lack of customers but a lack of available space. Empty or half-empty shelves in a sense.

Noticeable yet adequate increase of rents
The increase of rents is noticeable, but it is still adequate. “The prime rent increased to EUR 22.00 per square metre. Since the start of the year, the average rent increased by around 2.3 percent to currently EUR 13.30 per square metre,” explains Florian Schmidt. Compared to other major cities, rents are still on a moderate level.

Lowest vacancy rate since 2001
Vacant office space decreased in virtually all submarkets, during the first half of the year. A total of just 230,000 square metres was available at the end of the second quarter. This corresponds to a share of around 2.9 percent of the total stock of office space. According to the analysis performed by Greif & Contzen, this is the lowest vacancy rate recorded in Cologne’s office space market over the past 16 years. The vacancy rate varies depending on the location: There are various good city centre areas that are virtually fully let, while there is a little more breathing space left in most submarkets on Cologne’s outskirts. The experts from Greif & Contzen consider these areas to be home to important opportunities for Cologne’s market: The development of new office locations with adequate infrastructure, ranging from broadband access, and good traffic links through to sufficient local supply facilities.

Lack of new space
The forecast prepared by the real estate specialists from Greif & Contzen describes that in total, the new buildings that are currently under construction or in planning stages, are not going to cover the accrued demand, and the short-term demand that is expected to occur by the end of the year. As the general economic conditions in Cologne continue to be favourable, demand for office space is likely to remain high. The supply of newly built office units cannot keep up with this: The estimated total of 60,000 square metres that are scheduled for completion by the end of the year is among the lowest figures of recent years. Just under 250,000 square metres were completed in 2009 for example, with just over 100,000 square metres in 2016, and a slightly lower figure in 2017. The situation is reinforced by the fact that only a small share of the completed space will be available to the letting market. A large proportion of the new office space has already been pre-let or is designated for owner-occupation.
Overall take-up remains on a good level for now, thanks to a great number of smaller individual contracts: More than half of the space let, was turned over in the form of units of less than 1,000 square metres. Take-ups in this size category accounted for no more than 37 percent in 2017. In Greif & Contzen’s latest analysis it is pointed out that – for the first time since 2013 – no individual contract was concluded for an office space unit of more than 10,000 square metres, during the first two quarters of the year. “An overall result in the range of the five-year-average of around 300,000 square metres is still possible in 2018, however, it is rather unlikely at this point, due to the scarcity of available space. In this market situation, rents may well increase further over the coming months,” says Florian Schmidt.