Does the inner-city office market deserve more attention?
In their latest report of Cologne’s office space market, the property experts from Greif & Contzen take a close look at Cologne’s city centre. They find that office properties are not given sufficient consideration in discussions about transformation in the city centre. The overall result of the analysis shows that strong key figures were achieved in the office property market of the city on the Rhine in 2021, despite the restrictions due to the COVID-19 pandemic.
If you ask people, what they associate with Cologne’s city centre, they will usually say ‘shopping’. Cologne is among Germany’s most popular shopping destinations. Schildergasse, Hohe Strasse, Ehrenstrasse and Mittelstrasse attract locals and tourists alike.Or they did, until two years ago. Shopping tourism was hit hard by the COVID-19 pandemic. This has sped up the transformation of the city centre and has encouraged recent discussions about the state and the future of Cologne’s inner city. These discussions are shaped by catch phrases such as ‘retail sales drops’, ‘store closures’ and even ‘commercial desertification of the city centre’. The real estate experts from Greif & Contzen point out that this view is ‘too narrow’. They bring an aspect to the discussion table that has been neglected to date: the role of Cologne’s city centre as an office location.
Decrease of take-up in the inner-city office space market
In their latest report about Cologne’s office space market, the property experts from Greif & Contzen take a close look at the city centre. This is what they found: ‘A shift towards the submarkets beyond the city centre could be observed even in 2020, and the same development occurred in 2021.’ Andreas Reul, Head of Office Properties of Greif & Contzen Immobilienmakler GmbH, can present some specific figures: ‘Before COVID-19, the city centre regularly accounted for a share of over 40 percent of all space taken up in Cologne’s office space market. A share of 53 percent was recorded in 2013. In both 2020 and 2021, this share was just 27 percent.’ Does that mean that Cologne’s city centre is becoming less important as an office location? Reul explains that this decrease in take-up is at least a sign that office space must be taken into consideration in current and future discussions about the development of the city centre. ‘Any construction and refurbishment plans will come to a halt, if there are no prospective tenants, and a decline in the number of office workers will cause inner-city retailers to lose even more customers.’ Property expert Reul adds that the decline in take-up in the city centre is in part due to the fact that potential tenants have been acting with a little more restraint during the COVID-19 pandemic, than is normally the case. Another reason for this development is the big role that the public sector has played in Cologne’s office space market in recent years. Public facilities such as federal institutions are often more price-conscious than private sector companies, and they tend to attach less importance to a brand-enhancing, prestigious address and good visibility in the urban landscape. Authorities are willing to opt for the periphery, while companies that focus on prestige prefer centrally located premises.
Attractive office buildings have a positive impact on the entire city centre
And yet: ‘The decline in take-up can largely be attributed to a lack of available office space in Cologne’s city centre.’ The real estate experts firmly believe that a stronger focus should be put on office properties, when the future of Cologne’s city centre is discussed, and that it is important to think about ways to give them the room they deserve. ‘Attractive inner-city office space attracts desirable users. These will bring purchasing power to the city and revive it, and they are interested in contributing to a positive development of their environment,’ says Andreas Reul. Prompt action is needed to take advantage of these aspects, as an increase in demand for office space can already be observed. Greif & Contzen expects that take-up of space in the city centre will rapidly increase, provided that enough space is available.
Leading position of Cologne’s office space market among the top 7 cities
Greif & Contzen’s overall assessment is that good key figures were achieved in Cologne’s office space market in 2021, despite the restrictions due to the coronavirus. Developments in the cathedral city even placed it among the best of the country’s top 7 cities. ‘The pre-crisis level achieved in 2019, and even the long-term average, were exceeded, with around 315,000 square metres of space taken up,’ Andreas Reul points out. Public facilities accounted for a large share of the demand and for around 45 percent of space taken up. ‘In addition to the crucial role played by public institutions, Cologne’s market benefits from resilient private sector companies, such as education providers and law firms,’ explains Andreas Reul.
Increase of rents in 2021
Compared to the year before, the prime rent increased from around EUR 26.00 to EUR 27.00 per square metre in 2021, and the unweighted average rent rose from EUR 14.00 to EUR 15.30. Vacancies increased slightly to now 3.2 percent.
Bright prospects for the months ahead
Greif & Contzen expects that the current vacancies in the city centre will gradually decrease over the next few months, and that more private sector users, whose search for space has been on hold, will enter the market and start looking for office space in the city centre. The property experts predict that the key peripheral submarkets will continue to fare well and that users will be found for office units available here.