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Cologne’s office space market: COVID-19, politics and market development in the months ahead

What will the future of Cologne’s office space market look like, and what are the decisive factors? – In their latest market report, the property experts of Greif & Contzen break down the aspects that are going to shape the market in the near future.

Cologne’s office space market is doing well, according to the new market report in which the real estate experts of Greif & Contzen analyse the first nine months of the year. The market has weathered the COVID-19 pandemic relatively unharmed. Businesses from a wide range of industries and sturdy demand for space from public users, continue to account for numerous rental contracts that are concluded, also for large units. Unlike in other major cities, rents are stable or rising slightly.

This positive development is reflected in take-up: around 210,000 square metres of space were taken up in the year to date. This corresponds to an increase of about 45% compared to last year and is even slightly above the pre-COVID level. Vacancies are increasing moderately. Greif & Contzen expects the vacancy rate to rise to 3.6 percent by the end of the year. A slight increase compared to the 2.3 percent recorded in 2019 and 2.9 percent in 2020 is, however, ‘nothing to worry about and still too low to quickly compensate for fluctuation and increase in demand for space,’ explains Andreas Reul, who is in charge of the Office Space Division of Greif & Contzen Immobilienmakler GmbH. The prime rent remains stable at around EUR 26.00 per square metre, while the unweighted average rent increased from EUR 14.00 to EUR 15.00 per square metre since last year. The highest rent realised was around EUR 29.50 per square metre.

Pandemic and government formation
So far, so good. But where are we headed? Andreas Reul takes a look at the months ahead. Which factors will have the greatest impact on Cologne’s office space market? His concise answer consists of two key points: ‘The consequences of COVID-19 and the formation of the government!’ Andreas Reul is sure that the global challenge of the ongoing COVID-19 pandemic and the national question of who will be governing the country in the future, are going to characterise the local real estate market over the next few months. As long as these issues remain unclear, some companies will continue to postpone their decision-making processes, and this can have a significant impact on economic development in Germany.

Economic prospects are influenced by vaccination coverage
The coronavirus has been slowing down worldwide trade for the past year and a half, and has caused supply bottlenecks, travel restrictions and stagnation. Private sector companies were – and still are – careful when it comes to decision-making. Some office users are still unwilling to make any long-term commitments concerning their future demand for space. Cologne’s office space market has been gaining momentum in recent weeks, while the virus has begun to feel a little less threatening, economic prospects are positive and greater freedom has been regained. ‘We can observe an increase in demand for units of less than 1,000 square metres in particular,’ says Reul. However, decision-making continues to drag on longer in many companies that are looking for larger units. ‘The further development of vaccination coverage and the question of whether more containment measures will be taken in the winter are going to determine, whether we will experience economic recovery or stagnation. This in turn will be reflected in siting decisions in Cologne’s office property market,’ Andreas Reul explains.

Will an increase of insolvencies cause a decrease of demand for space?
Insolvencies are another aspect in relation to the coronavirus that is hard to assess at this point. Whether and to what extent companies are experiencing financial difficulties owing to the pandemic, and will become insolvent when state support and special rules are no longer available, remains to be seen. The impact this will have on the office property market is quite simple: more insolvencies will cause an increase of vacancies and a decrease in demand for space. In addition, many office users need to figure out, based on which workplace concepts they want to determine their future space requirements. According to initial assessments, there will be only few cases where space will ultimately be decreased.

Which changes will be implemented by the next government?
The future government is the second key aspect that will have an impact on Cologne’s office space market over the next few months. Climate protection, energy revolution, digitisation, taxes: the development of the economy and of demand in Cologne’s property market is also going to be significantly influenced by how and when the major issues from the election campaigns will be approached and implemented. ‘The question that arises on the supply side is whether the industry will be facing any regulatory changes. For example, whether new commercial buildings will have to fulfil additional requirements, and whether this may give rise to a further increase of construction costs,’ says Andreas Reul, outlining a few of the questions that the real estate industry is currently dealing with.

On the whole, Cologne’s office space market will be characterised by various questions and uncertainties in the months ahead. The good news is that Cologne’s office space market is not going to collapse entirely, even if the factors that determine the market were to develop unfavourably over the next few months, with regard to COVID-19 or the political environment. ‘The overall market is too resilient for this to happen. We also have the great advantage that a large share of demand is accounted for by public users and medium-sized companies, rather than just by large corporations or a single industry. This aspect has a strong stabilising effect,’ Reul explains. A total take-up of around 290,000 square meters of space is achievable in 2021. This corresponds to the pre-COVID level. Vacancies that have been increasing recently may decrease once again if the economy is going to pick up in 2022, as is currently being forecast by economists.

Andreas Reul sums up the situation: ‘In conclusion we can say that Cologne’s office space market is doing well at the minute, and that there is good potential for a successful future. Whether this potential can, however, be realised, and whether the local economy and therefore the office property market will manage to remain on their success course, will depend on macroeconomic circumstances as well as on political influences in the immediate future. We are hoping for good political decisions.’

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