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Office Space Market Cologne: Rents at record levels, vacancies decreasing at a slower pace

picture GAG Headquarter

Greif & Contzen presents an overview of the developments in Cologne’s office space market during the first half of the year: steadily high demand provides for an ongoing scarcity of availability and dynamic development of rents, despite busy construction activity regarding interesting development projects. Cologne continues to present good opportunities for new real estate projects.

The first half of 2019 has been lively in Cologne’s office letting market. In their latest analysis of the office space market, the property experts from Greif & Contzen report that a total of around 145,000 square metres of space was taken up between January and June. This corresponds roughly to the average letting performance of the first six months of 2014 to 2018, respectively. A 15,800 square metre unit taken up by Sparkasse KölnBonn in the “KITE” project in Ossendorf accounted for a significant share of the total turnover. Another major transaction involved the coworking provider WeWork taking up around 6,700 square metres in the premium property “WALLARKADEN” in the city centre. The same company had taken up an office unit in the nearby new building “Haus Friesenplatz” in 2018. The IT service provider CANCOM closed another large-scale deal, and took up around 6,000 square metres in the development area “I/D Cologne” in Mülheim.

High pre-letting rates in property developments
“The solid take-up figures should not distract from the fact that Cologne’s office space market is still characterised by strong demand that is met by very low availability in existing properties,” explains Florian Schmidt, Head of Office Properties at Greif & Contzen. Construction and refurbishment projects therefore remain crucial. Almost 40 % of space taken up is accounted for by pre-let units in construction projects that are scheduled for completion between 2019 and 2021. New, modern office space that becomes available tends to be taken up very quickly. This has also proved true for the new buildings completed so far this year, such as “Kaiser Hof”, “ONE Cologne”, and the first construction phase of “Haus Friesenplatz”: around 40,000 square metres of office space that is almost fully let.

Vacancy rate at a record low of 2.4 percent
A key indicator of the shortage of space is the vacancy rate that continued to decrease slightly and is currently at a record low of just 2.4 percent. This evokes memories of the economic boom before 2001. Does that mean that there is no more room for relocations, extensions, and new businesses? The real estate experts from Greif & Contzen can give some reassurance: “Looking at the large contracts concluded over the past few months, the list includes ‘Ossendorf’, ‘Mülheim’, and ‘Deutz’: these are examples of locations that currently have relatively good availability of space in construction projects. These areas already account for significant shares of the take-up and they have room for further property developments,” says Schmidt.

Highest level of building activity since 2009
The new headquarters of Zurich Versicherung that are being built as part of the major construction project “MesseCity” are also located in Deutz, one of Cologne’s thriving office space sub-markets. The researchers from Greif & Contzen expect that a total of around 160,000 square metres of office space will have been created by the end of the year. “This corresponds to the highest level of building activity since 2009,” Florian Schmidt is pleased to report. For comparison: just under 62,000 square metres were completed last year. “There are busy construction activities, but available space is still decreasing,” explains Schmidt. “These two indicators alone are a clear sign that there is room for more modern, new office properties in Cologne.” Prospects therefore continue to be favourable for property developers and construction companies. “Cologne is a dynamic location with increasing employment levels. The obvious drawback in this positive development is that things are getting tight and expensive in certain segments,” says Schmidt.

Dynamic development of rents
In a market that is characterised by low vacancy rates and high demand, rents increased both on average and in the top segment, during the first half of the year. The unweighted average rent increased from around EUR 13.00 to about EUR 14.00 per square metre. Meanwhile, the average rent weighted according to unit size also increased by one euro to currently EUR 16.00 per square metre. The temporary peak of July 2016 was therefore exceeded for the first time. Back then, this key figure had soared to EUR 15.40 after Zurich Versicherung had taken up around 60,000 square metres in the “MesseCity” project. The prime rent continued its rising trend of the past year and a half, standing currently at EUR 24.00 per square metre. The maximum rent of EUR 29.00 was agreed upon for a single premium property.