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Cologne’s office rental market is running out of space

Around 310,000 square metres of office space taken up: this is the figure reported by Greif & Contzen’s researchers for Cologne’s office space market in 2017. It corresponds to a decline by around 30 percent, compared to the record year of 2016, in which 440,000 square metres were let. However, it is still the third best result of the past decade.

One of the reasons for the decreasing take-up figures in Cologne’s office property market is a lack of adequate office units. “There are several requests for office units in the four and five-figure square metre range, however, there are no suitable properties to meet those requirements,” says Florian Schmidt, Head of Office Properties of Greif & Contzen Immobilienmakler GmbH. Unlike 2016, when six major transactions alone accounted for a total of 140,000 square metres of office space, there were only two transactions in the five-figure square metre range in 2017, with a total of around 36,000 square metres. When looking at the vacancy rate, it becomes apparent that more space could have been taken up: it stood at only 4.6 percent in 2016. This share also includes existing buildings that are virtually unfit for letting due to significant defects. A vacancy rate below five percent is therefore considered by real estate professionals to be a clear indication of a sold out market. Nevertheless, Cologne’s vacancy rate dropped further in 2017 to 3.8 percent. “In a number of cases tenants rather reluctantly settled for properties, which did not quite meet their requirements,” explains Florian Schmidt.

There is no short-term remedy in sight, either. Completions even decreased, from about 110,000 square metres in 2016 to only around 95,000 square metres last year. Rental prices were affected by the scarce availability combined with a strong demand: the top rent in the premium segment stood at EUR 26.50 per square metre in 2017 while the average rent reached the EUR 13.00 per square metre mark, which corresponds to an increase by six percent over 2016.

Outlook: Demand for office space continues to rise due to economic boom
Space potential on the right bank of the Rhine

The economy is buzzing and the labour market is approaching full employment: “Demand for office space is fuelled further by the strong economic upswing,” says Florian Schmidt. But where to find the space required? According to Greif & Contzen there is plenty of potential in Cologne’s districts on the right bank of the Rhine. More than 40 percent of office space taken up and around 47 percent of office space completed in 2017 was already located in this part of the city. In a detailed analysis of potential, Greif & Contzen’s researchers found that there are further sites in these areas on which office property projects could be realised over the next few years. This would result in a further increase of significance for the districts on the right bank of the Rhine.
What Cologne needs: Courageous property developers and investors who are willing to launch new construction projects. After all, only around one third of the around 80,000 square metres of office space that are currently known to be scheduled for realisation in 2018 is going to be available to the market. Two thirds have already been taken up. It is getting rather crowded in Cologne.