Office market report for the cathedral city: Greif & Contzen sees opportunities offered by extensive refurbishment projects. Policy-makers must create confidence.

In their short report about Cologne’s office space market in 2024 that was published in early January, the researchers from Greif & Contzen described a year that was characterised by low demand. At around 210,000 square metres, take-up of office space was only around five percent higher than the poor result observed in 2023, and around 29 percent of take-up were accounted for by public sector users. The vacancy rate excluding units offered for sub-letting rose to 4.6 percent and thus to the highest level since 2016. Greif & Contzen analysed a year in which many office users shied away from long-term commitments and expenses, owing to the weak economic situation and geopolitical uncertainties. The same can largely be said about landlords and investors, who were just as uneasy, and who were also confronted with the still increasing demands related to high energy prices and ESG targets driving up costs.

Available units often fail to fulfil the users’ requirements
This situation has not changed since the start of the year. The business environment remains challenging, companies are affected by cost pressure, and not much is going on in the real estate market of Germany’s fourth biggest city. Over the past few weeks, the real estate experts from Greif & Contzen have enhanced their analysis of the office space market against this background, and have in particular explored the question, where stimulative effects for Cologne’s office space market might come from. As a general rule, Greif & Contzen found that owner-occupiers and tenants have been focussing on future-ready properties that offer workplaces that staff members are happy to attend. “We can see potential in construction, refurbishment and revitalisation projects in the top locations, as availability of high-quality office space in the city centre is very low,” explains Andreas Reul, Head of Office Properties at Greif & Contzen Immobilienmakler GmbH. A large share of the units available does not meet the requirements of tenants with regard to energy efficiency, layout concepts, technical equipment and a modern working environment. “Many of the vacant properties are older buildings,” Reul says. Environmental aspects have meanwhile become an integral part of most office users’ specification criteria.

Upgrading is a promising approach in good locations
“Owing to the weak demand, it has become much harder to find tenants for office units that don’t meet modern standards,” Reul points out, adding that “this is an ongoing trend, as the quality and energy-related requirements of tenants continue to increase”. Upgrading older premises can be a worthwhile endeavour, especially in good locations. Owners of existing buildings frequently shy away from large investments, as it does not appear to be certain that refinancing can be achieved through higher rents. However, the development of rents and the market in general suggests that refurbishment and revitalisation measures can considerably increase marketing opportunities: in the high-price segment the prime rent has gone up from EUR 33.00 per square metre in 2023 to currently EUR 35.00. The weighted average rent rose from EUR 19.60 to EUR 20.30 per square metre in the past year. Reul points out that it must, however, be borne in mind that “exceptionally high rents such as these can only be obtained with units that are outstanding in every way”. Many property owners have meanwhile recognised the opportunities associated with upgrading their buildings: at around 58 percent, revitalised and refurbished buildings already account for more than half of the space under construction in Cologne. 

Repurposing of office space: opportunity and risk
Alongside refurbishment concepts, repurposing could also have a positive impact on the overall situation in the real estate market. “Some smaller office buildings are already being used for various different housing purposes, such as micro-apartments and serviced apartments,” Reul says. This is a good development for a certain segment of the housing market where there is a demand surplus. However, such units are permanently lost to the office space market. This is why repurposing is not just an opportunity but also a risk, as Cologne’s office space market might be deprived of future opportunities if too much space is reclassified. For an office space market to remain appealing enough to make companies wish to stay and to attract new ones, it is essential that a sufficient amount of space is available. If units are reclassified, this should be compensated for through new construction projects. However, the market has been faltering in this area, too. Around 90,000 square metres of office space were completed last year, about 16 percent less than the five-year average, and even less space is to be added to the market this year: around 60,000 square metres. As mentioned before, a large share thereof is revitalised and refurbished space.

The key task for the future is to rebuild trust
Refurbishment and construction projects that compensate for space lost and increase the amount of top-quality office space available could help Cologne’s market to get back on its feet. However, Andreas Reul believes that the events in Cologne’s office space market in the months ahead “depend largely on whether the stakeholders regain their trust”. “We can see signs of companies wishing to invest again and to realise their strategies for modern working worlds. However, they will only implement these concepts if they believe that the overall business situation will improve,” Reul points out. Considering the upcoming general elections in February, Greif & Contzen believes that there is a strong need for the future government to take action. However, it is to be expected that it will take several months rather than just a few weeks for incentives or funding programmes to be adopted or red tape to be reduced, and for such measures to then have an impact on the market.

Ongoing demand for space and stable rents in the top segment of Cologne's market
The experts from Greif & Contzen expect that a similar amount of space as last year will be taken up in 2025, and that vacancies are likely to increase rather than decrease. “Cologne remains an attractive location for insurance and consultancy companies, public authorities, research facilities, education providers and many other industries, nevertheless. There continues to be demand for high-quality office space, and it is therefore not to be expected that rents will go down, at least not in the high-end segment,” Reul says.