“Office buildings are not becoming redundant but are being transformed”
Greif & Contzen presents its latest report of Cologne’s office space market: take-up of space is once again increasing, while the COVID-19 pandemic gives rise to structural changes
A total of around 140,000 square metres of office space had been taken up in Cologne by the end of the first half of 2021. This corresponds to an increase of around 47 percent compared to the same period last year. “Following a challenging start of the year, the economy is now back on the path to recovery,” reports Andreas Reul, Head of Office Properties at Greif & Contzen Immobilienmakler GmbH. Public facilities in particular, gave rise to busy demand for space in Cologne’s market in recent months. Federal authorities and institutions took up a total of over 30,000 square metres of office space in the first quarter alone. Law firms and higher education institutions were also represented strongly.
Increasing vacancies, steady rent levels
Take-up of space increased and the same is true for vacancies, which rose from around 230,000 to around 260,000 square metres. This corresponds to a vacancy rate of about 3.3 percent (previous year: 2.6 percent). However, rental levels remained stable overall. This seeming contradiction was caused by the fact that a small number of very large units was vacated. Space in good locations and in mint condition is still sought-after and availability is low. This has an impact on rent prices. The prime rent remains unchanged at EUR 26.00 per square metre. Even higher rents of up to EUR 29.50 per square metre (maximum rent) were agreed upon in individual cases of top quality units in very popular locations. The unweighted average rent increased from EUR 14.00 to EUR 15.00 per square metre, while the average rent weighted according to unit size rose from EUR 16.50 to EUR 17.30.
The market remains relatively stable despite COVID-19
At the end of the first half of the year, it can be said that Cologne’s office space market is in a satisfactory overall state. The effects of the COVID-19 pandemic are on a moderate level to date, and rent levels are not decreasing despite the increase of vacancies. But where are we headed? Is the COVID-19 pandemic going to affect demand and prices in Cologne’s office space market further? When and to which extent will such impact show? These are the questions Greif & Contzen addressed in a focus topic.
Future role of working from home arrangements
One thing is certain: working from home plays a more important role now, and the areas of living, commuting and working are being restructured increasingly. “Offices will remain the central workplace, nevertheless, because people appreciate social interaction and face to face communication,” real estate expert Andreas Reul points out. “Working from home arrangements will continue to exist alongside office workplaces.” Greif & Contzen assumes that quota systems where employees alternate between working at the office and from home will prevail, especially in big corporations and authorities. “This trend is indicated by the fact that companies are already looking for long-term subtenants for parts of their office units. They want to reduce the size of their office premises but not give them up entirely,” Reul says.
Future office layout trends
In their focus topic, the researchers from Greif & Contzen predict that the role of communication and interaction will be reflected more clearly in future office concepts. This effect is also linked to an increasing use of IT-based work. These developments give rise to office units with fewer workstations than staff members and without fixed individual workstations, as part of the workforce is always working from home. Common and meeting areas, places of retreat and conference rooms will meanwhile increase, according to the prediction. Apps will be used, for example for booking workstations, rooms or services. To ensure their staff members’ satisfaction and loyalty, companies are willing to invest into the quality of the workplace: comfortable furniture, accessories that make for an affirmative atmosphere, or the availability of services ranging from cafés, via gyms, through to childcare facilities.
Will COVID-19 have an impact on the demand for space?
In their assessment of the near-term situation, the real estate experts from Greif & Contzen assume that demand for space could match the pre-crisis level in the current year. They expect the vacancy rate to rise to 3.6 percent by the end of the year, but do not anticipate any rent decreases. Greif & Contzen expects that the space reductions that some companies are planning to realise, will not lead to a noticeable decrease of the overall demand for office space in Cologne’s market in the medium term either. “A sub-letting strategy is only suitable for certain companies, and the loss of a fixed workstation is not accepted by all workforces. Meanwhile, there are various elements of modern office layouts for which more space is needed,” Reul explains. Further aspects are the facts that the economy has picked up again and that Cologne is growing, also with regard to the number of office workers. Andreas Reul assumes that “this is going to compensate for the decrease in demand due to working from home arrangements”, and continues to say that “the total amount of office space needed is not going to decrease considerably, even if a greater share of employees will be working from home in the future.” The real estate experts of Greif & Contzen conclude that the initiated changes are not going to make office buildings redundant, but are contributing to a transformation of office workplaces.
Many aspects remain uncertain. These include the question, when the vaccination campaign will be advanced enough to provide overall protection against the virus and its variants, as well as how things will develop regarding supply bottlenecks, the scarcity of raw materials and the resulting scarcity of materials and price increases. Forecasts for the current year are positive, nevertheless. Also with regard to demand for office space in Cologne. Andreas Reul is optimistic: “290,000 square meters of office space could be taken up in Cologne’s market by the end of the year.”