Fewer vacancies, office space is getting more expensive

In their latest publication, the real estate experts from Greif & Contzen report that Cologne’s market is in good shape

Cologne’s office space market delivered a stable performance in the past year, despite the various recent crises. 315,000 square metres of office space were taken up in 2022, according to the current market report by the real estate experts of Greif & Contzen. This is on par with the previous year’s result, which had been very good compared to the long-term average.

Rising costs, rising rents
The fact that office properties in Cologne are still in demand is also reflected by the vacancy rate, which decreased by ten percent between 2021 and 2022 to currently just 2.8 percent. The combination of “reliably strong demand” and “little vacant space” improved the negotiation position of landlords, who saw room for rent increases. This has also been a way for landlords to pass on higher costs. “The geopolitical and economic crises did leave their mark on Cologne’s office space market, despite its great resilience,” says Andreas Reul, Head of Office Properties at Greif & Contzen Immobilienmakler GmbH. “Many property developers have been faced with supply problems and strong cost increases. This gave rise to pressure to increase rents, in order to pass on at least a part of such costs.” By the end of the year, the unweighted average rent had risen from EUR 15.30 to EUR 16.70 per square metre. The prime rent rose from EUR 27.00 to EUR 28.50 per square metre, and the maximum rent from EUR 28.50 to EUR 36.00.

Public facilities dominate demand side
Public facilities, associations and societies were the most important demander group in Cologne’s office space market in 2022. This user segment that includes the city of Cologne, federal institutions and the VRS transport association, dominated the demand side, and accounted for 43 percent of the overall take-up of office space.

Available space is scarce, new developments in top locations
However, there is also a downside to the solid state of the office space market: available space is scarce. At the same time, the general conditions for construction projects deteriorated considerably in 2022, due to rising interest rates and construction costs, and to material bottlenecks. Greif & Contzen observes that new property developments are still being announced in Cologne’s property market, nevertheless, especially in very good locations and the “high-quality” segment. “This is primarily due to the fact that there is great demand for high-quality space,” Andreas Reul explains. “New buildings are suitable for realising modern workplace concepts, and can therefore be an incentive for sought-after experts to choose a particular employer. Low ancillary costs thanks to lower energy consumption and ESG compliance of new builds are further factors that give rise to even higher demand for premium-quality developments.” He adds that existing buildings can also be modernised comprehensively through revitalisation measures. This strategy is currently being pursued successfully in a number of established city centre business neighbourhoods.

Submarkets continue to evolve
A few submarkets within Cologne’s city limits, such as Cologne-Mülheim, benefited from the sustained strong demand paired with low availability of space in 2022. “We could observe highly dynamic development here over the course of the year,” Reul says. The office market map published by the real estate experts of Greif & Contzen features a breakdown of the situation in the individual submarkets. Availability of high-quality new buildings gave rise to strong take-up figures and rising rents in the office neighbourhoods of Mülheim and Deutz.

Outlook: slight damper without serious impact Greif & Contzen expects that the forecast economic downturn will show in Cologne’s office space market in 2023, in the shape of an increase of vacant space and dampened demand. The latest economic report by the Cologne Chamber of Industry and Commerce also suggests that the economic damper might turn out to be less severe than feared, making serious impact on Cologne’s office space market unlikely. Andreas Reul: “It is quite possible that take-up will be on an average level. Many companies need to catch up by now, when it comes to adjusting their workplace concepts. This can lead to new leases and relocations in many cases.” Cologne’s office space market also benefits from the region’s current record high of employees contributing to social insurance. The experts from Greif & Contzen anticipate a further upwards trend of rents, as construction costs continue to be high and availability remains low. They report that this is the case in particular with regard to prime and maximum rents for new and revitalised buildings, as well as for existing buildings in mint condition. Current economic analyses show that companies are overall more adaptable than had been originally anticipated. The downward trend has lost momentum, and companies from Cologne report that their business situation has improved in recent months. Expectations for the near future are no longer quite so negative as had been the case as recently as in autumn 2022. Provided that energy prices do not rise again, that the consumer climate continues to improve as consumers regain trust, and that inflation also shows a downward trend, the silver lining will become more and more visible on the horizon.