TOP 7 OFFICE MARKETS 4Q2023: Multiple crises affect the market

In the 4th quarter of 2023 businesses in Germany’s top 7 cities were far more willing to sign contracts for new office premises than in the nine months before. Take-up in the quarter was 742,700 m², or about 200,000 m² more than in each of the three previous quarters. As German Property Partners (GPP) had expected, the year closed with a total of about 2.40m m² and thus fell 31 % below the figure for 2022. Despite greater activity in the 4th quarter, the year’s result was lower than any noted since GPP was founded in 2013, including that of 2020, the first year of the pandemic. This conclusion was reached by the network consisting of Grossmann & Berger, Anteon Immobilien, GREIF & CONTZEN Immobilien, blackolive and E & G Real Estate. 

COMPREHENSIVE TRANSFORMATION

“However, the current business environment is considerably more complex than it was during the pandemic. Germany is undergoing a radical process of transformation. Greater use of digital tools, more knowledge-based work, demographic upheavals, social and political polarisation, extreme efforts to achieve sustainability and armed conflicts abroad all play a role in this. Many of these elements are interdependent with sometimes conflicting aims. When taking all these things into consideration, people arrive at very differing conclusions about their office choices,” explains GPP spokesperson Björn Holzwarth. “For 2024 this means that if the economic environment stabilizes, businesses are likely to implement previously shelved plans for adjustments to work routines and office space. If geopolitical crises and inflation become more acute, the market will slow even more.”  

2023 IN BRIEF

In the year 2023 this situation impacted the office-letting market in Germany’s top 7 cities in that:

• Businesses invested more in quality than in quantity, causing a downturn in take-up in all top 7 cities.
• Since tenants preferred new or good-as-new premises in central locations, premium rents increased everywhere. Compared with the other top 7 cities and in comparison with the prior quarter’s top rate, Munich’s premium rent reached a new high of €52.30/m²/month. At 16 % each, Düsseldorf and Cologne posted the largest increases, ahead of Munich with 15 %.
• In view of an increasing number of imponderables, only two agreements for more than 20,000 m² of space were signed, compared with twelve in 2022. The largest volume of space 2023 taken in a single agreement was not even half the size of the biggest contract in 2022 (65,000 m²). In Frankfurt no leases were concluded for more than 13,000 m² of office space; in Stuttgart not one exceeded 7,000 m². Owner-occupiers played only a marginal role in the top 7 cities, comprising 7 % of the total.
• Despite a vast variety of challenges in 2023, employees still spent most of their working hours in the office. Accordingly, the vacancy rate in the top 7 cities remained well below 10.0 %, although it did rise year on year from 5.1 % to 6.1 %. This is also true for the two cities with the highest vacancy rates, Frankfurt and Düsseldorf. The pool of empty space grew in all top 7 cities, especially so in Cologne (+25 %) and Berlin (+24 %).