In their latest report of the office space market, the real estate experts from Greif & Contzen are taking a look at the current work-from-home trend caused by the corona pandemic, and the impact it has on Cologne’s office property market.

There are some clear facts: With around 145,000 square metres of space taken up by the end of September, Cologne’s office space market falls short of last year’s figures by about 30 percent. Vacancies are currently increasing to a moderate extent, while rents remain largely stable. Another aspect is also quite clear: ‘There are requests for office space for rent, but decision-making processes are often delayed at the moment,” says Benedikt Graf Douglas, Management Executive and Head of Office Properties at Greif & Contzen Immobilienmakler GmbH.

Companies are considering their future office space requirements
So much about the facts. Understanding market development is a more complex task, however. After all, it is not without reason that decisions are being postponed. The reason is called the coronavirus and it gives rise to much uncertainty everywhere, and Cologne's office space market is not an exception. Many companies asked their staff to work from home during the corona pandemic. This was referred to as an ‘interim solution’ for many weeks. As a temporary arrangement that after the end of corona-related restrictions, would have no lasting effect on workplaces in office buildings and therefore on Cologne’s real estate market. However, many companies have since adjusted their approach. They are thinking of working from home as a long-term alternative and are drawing up calculations to determine whether office space can be reduced in the future. The estate agents at Greif & Contzen have already recorded requests for smaller units, due to an increase in employees working from home, and they can observe that some large enterprises are planning to sub-let space they no longer need.

Reducing, optimising or holding on to space
In their latest report of the office space market in the first nine months of the year, Greif & Contzen’s researchers take a closer look at the current work-from-home trend. They have identified three strategies employed by companies: to reduce, optimise or hold on to space. Companies striving to reduce office space and related costs, envision the majority of their staff working from home also beyond the end of the pandemic. Companies wishing to optimise, are acting more cautiously. They tend to specify days on which employees must attend the office and are rearranging their premises to allow for a more flexible and effective use. Companies planning to hold on to their office space, are going to return to the same office space concepts with employees present on site, once the pandemic is over. ‘Cologne’s office space market reflects these different approaches to working from home even now,” says Benedikt Graf Douglas. ‘The way we work has changed due to the corona situation. It will not be possible to return to the exact same status. A hybrid structure where employees are working from home for individual days, but are required to be present in the office for the majority of their working hours, appears to be the most likely solution.’ An optimisation approach is currently the most common strategy, according to Greif & Contzen. Established structures are used and office premises are still considered the centre of business operations, while the option to work from home is reinforced to enable employees to work more flexibly. Work is becoming more decentralised, but this does not necessarily mean that less space will be needed. Modern communication islands and video conference rooms for business meetings also require space, and they often need to be set up in addition to existing facilities.

No structural crisis in the office space market
‘We have found, for example, that business trips are often not necessary. However, more and bigger conference rooms are then needed to allow for meetings to take place in the form of video conferences,’ says the real estate expert Douglas about one of the trends that can currently be observed in Cologne’s office space market. This trend may compensate for a significant share of the decrease in demand due to a reduction of desk workstations. The property experts of Greif & Contzen do not expect that Cologne’s office space market is going to experience a crisis. Around 200,000 square metres of space will be taken up by the end of the year, according to Greif & Contzen’s estimate. This would make the year of the corona pandemic the weakest year of the past one and a half decades with regard to take-up figures. However, existing requests for space and the latest economic forecasts give rise to cautiously optimistic expectations, despite the fact that the consequences of the pandemic are not fully foreseeable at this point. ‘Our starting situation was characterised by strong excess demand, and the market was largely a landlords’ market. The vacancy rate was so low, requests for space were often difficult to cater for. Cologne’s market can handle a decline in demand, and a moderately increasing vacancy rate would even be quite healthy,’ explains Benedikt Graf Douglas. Greif & Contzen’s researchers expect that the vacancy rate that currently stands at around 2.7 percent is going to rise to about 2.8 percent by the end of the year (previous year: 2.3 percent). This is still a very low figure. In 2010, for example, the vacancy rate was just over eight percent, following the financial crisis.

Stable rents
The development of rents does not suggest a crisis either. The corona pandemic has not caused an overall decrease of office rents. The unweighted average rent remains unchanged at around EUR 14.00 per square metre, and the weighted average stands at around EUR 15.00. While this corresponds to a decrease compared to EUR 16.70 at the start of the year, this development is due mostly to a decrease of contracts concluded for units in new buildings. The prime rent of EUR 26.00 per square metre has been confirmed in 2020, and it is also the highest rent price achieved to date.

The shift is going to take a number of years
So there is no structural crisis, but rather a shift that gives rise to many interesting opportunities for development. It will only become clear over the course of the next few years, how space requirements are going to evolve. Companies will need this time to adjust their rental contracts and to realise new office space concepts. Despite the great uncertainty of the current situation, it is becoming quite clear that the developments that were triggered by the corona pandemic are unlikely to stop. Work is going to become more decentralised and this will cause a wide range of changes to the office property market.