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Corona disrupts Cologne’s office space market, but there are signs of a recovery

New office building Vitalisstrasse

Greif & Contzen analyses the first half of the year:
Corona gives rise to adjustment processes, but rents remain stable and vacancies are increasing slightly for the time being. Many companies have put their search for premises on hold, however, activities in the office space market are picking up once again.

Cologne’s office space market experienced a slow start of the year, even before the Corona pandemic hit. The resulting decrease of economic output affects all industries and this is also true in Cologne. However, the impact on the local office space market appears to be limited so far. The real estate experts of Greif & Contzen review the first half of 2020 in their latest office space market report. The figures show that following relatively low take-up of space in the first quarter of 2020, many companies put their search on hold from mid-March, and are reconsidering their demand for office space. “This is hardly surprising, considering the prevailing uncertainties. The situation in Cologne is the same as in all other real estate markets in large European cities. However, we can now observe that old space requests are being reactivated, as well as an increase of new ones,” says Benedikt Graf Douglas, Management Executive and Head of Office Properties at Greif & Contzen Immobilienmakler GmbH.

Fewer contracts concluded in property developments
Companies across all industries have adopted a cautious wait-and-see attitude. Contracts for refurbishments and new buildings, as well as take-up of larger rental units in general, have decreased compared to the same period in recent years. Take-up of space decreased to around 95,000 square metres in the first half of 2020. For comparison: around 145,000 square metres of space were taken up in the first six months of 2019, which corresponds largely to the letting performance of the first six months of 2014 to 2018 respectively. These 95,000 square metres include one major transaction of around 18,000 square metres let in Cologne-Gremberghoven. This transaction had been prepared before the Corona pandemic and was concluded in the second quarter.

Moderate increase of the vacancy rate, but no relaxation for the market situation
The vacancy rate has increased slightly to currently around 2.6 percent. The property experts from Greif & Contzen expect the vacancy rate to increase to about 2.8 percent by the end of the year. Compared to previous years, this would correspond to the first increase since 2009. “This will not lead to a noticeable relaxation of Cologne’s office space market,” explains Benedikt Graf Douglas. “The vacancy rate decreased steadily over the past several years, and most recently it was so low, it often took companies far longer to find suitable premises, owing to a lack of available space. This increase of the vacancy rate is therefore not going to lead to any major market relaxation.”

Rent prices remain stable
It cannot be observed to date that any significant amounts of office space are vacated as a consequence of the Corona crisis. Availability continues to be scarce, especially in popular locations. Local companies are holding on to their premises in these areas, and there continue to be potential new tenants where changes are coming up. Companies are determined to get back into the game after the end of the restrictions due to the Corona pandemic. Property developers and owners of existing buildings also believe in the persistence and the regenerative power of Cologne as a business location and of the local industries. So far, they have no intention to adjust their rent expectations. “The rent price potential has remained largely stable,” says Benedikt Graf Douglas. Expressed in figures this means: Asking rents remained stable in 2020 compared to the year before. At EUR 14.00 per square metre, the unweighted average rent has been unchanged since the end of 2019. Far higher rent prices can be realised with top-quality properties. One example of this is a contract concluded outside of the city centre, for a high-quality new build that was let for EUR 26.00 per square metre.

New buildings especially in the city centre, Ehrenfeld and Mülheim
Around 90,000 square metres of office space are scheduled for completion in 2020. The biggest new building with around 12,500 square metres will be Patiohaus in the development area I/D Cologne. 90,000 square metres may not seem like much, compared to the 160,000 square metres of office space completed within Cologne’s city limits in 2019. However, 2019 is to be considered an outlier, as the first part of MesseCity was completed and occupied by Zurich Versicherung. The amount of new space created in 2020 is on a solid level, compared to earlier years. Construction activities are particularly busy in the city centre, Ehrenfeld with the sub-district of Ossendorf, and Mülheim.

Requests for space are usually not cancelled but merely postponed
Many companies have only put their search for office space on hold temporarily, and are now returning to them, usually without adjusting their demand for space. No large units have been vacated to date. Regarding the next few months, Greif & Contzen’s researchers assume that the overall economy will return to a growth course, thanks to measures being eased and to the state support scheme. “Demand for office space is going to pick up again, too,” says Benedikt Graf Douglas. “There are certainly going to be painful adjustment processes. The areas of retail, travel and catering are suffering drops in turnover that in some cases are threatening to the companies’ existence, while orders received and capacity utilisation have dropped in the industrial sector. Short-time work and unemployment have increased. All of this is going to have an impact on Cologne’s office space market that is not least home to administration and service offerings for the severely affected industries.” The property experts from Greif & Contzen continue to point out that the existing and incoming requests for office space show that companies generally continue to have demand for space, nevertheless. “Space requests were usually not cancelled but merely postponed,” explains Benedikt Graf Douglas. “We also receive new requests on a regular basis, and even increasingly so as of late.”

Home office experiences may have an impact on space requirements
It will be interesting to see, whether the experiences companies have made with home office work, will affect the office space market. Many employees worked from home during the Corona crisis, and over the next few months, companies are going to analyse whether and in which ways home office options will have an impact on their space requirements. “Owing to long-term letting contracts, any adjustment processes are likely to take a few years to take effect,” Benedikt Graf Douglas points out. Greif & Contzen’s researchers dare to make a forecast for the near future, despite the uncertainties, such as a possible second pandemic wave: they expect that around 200,000 square metres of office space could be taken up by the end of 2020 (2019: 290,000 square metres).