Greif & Contzen’s annual analysis shows a solid office space market, where space remains scarce despite a high completion rate

On the occasion of the turn of the year, the real estate experts from Greif & Contzen always take a first short look at the developments in Cologne's office space market in the past twelve months. They found that around 290,000 square metres of space were taken up in 2019, around seven percent less than in the year before. This is the lowest take-up figure since 2016. However: “Demand for space continues to be strong in Cologne’s office space market, and rents are rising significantly,” points out Benedikt Graf Douglas, Management Executive and Head of Office Properties at Greif & Contzen Immobilienmakler GmbH. The main reason for the below average take-up is not a lack of interest from potential office tenants, but the increasingly scarce availability of space. As little as about 2.3 percent of the total of existing office space is currently available at short notice. Finding office premises of a suitable size and in a convenient location has become a game of chance, owing to this very low vacancy rate. “This still does not mean that any unit can now be easily let, and that there are going to be excessive price increases. For the time being, things are still well within reason in Cologne,” says Benedikt Douglas.

The increase of space is not sufficient
On the plus side it can be said that Cologne is popular and has been able to further build upon its position as a solid business location that is home to a wide range of industries. This is good for the city and reflected in the employment opportunities available. However, there is also a downside: it is getting rather crowded. A brief look at the office space key figures shows how crowded exactly: tens of thousands of square metres of office space have been added to Cologne’s market every year. An impressive total of 1.1 million square metres has been completed in the past 15 years. Around 150,000 square metres of new office space was added in the past year alone, in which the volume of space completed was especially high. And still, the space added does not suffice to meet the demand for office space. While it is, of course, delightful that Cologne is popular and an important office location, and that there is demand for space and for employees, and that we thus have a sound basis for prosperity, Cologne has meanwhile begun to struggle with the typical problems of a growing metropolis. These range from congested roads through to a lack of residential and also office space.

Most large units taken up are accounted for by construction measures
The lack of space and the related decrease of take-up in Cologne’s office space market was especially noticeable in the segment below 5,000 square metres in 2019. “This reflects the gaps in the current supply structure,” explains Benedikt Douglas. “Units above 5,000 square metres were available in a number of development projects, while supply was and still is limited when it comes to smaller units.” Larger take-ups are realised in particular in new construction measures handled by property developers and owner-occupiers. The biggest lease of 2019 was accounted for by a 17,600 square metre unit taken up by Sparkasse KölnBonn in the construction project “KITE” in Ossendorf. Around 8,400 square metres were taken up by the natural rubber producer ARLANXEO in the major construction project “MesseCity”. Further big transactions took place in the east of Cologne (7,900 square metres, German Aerospace Center), the Kölner Ringe area (around 6,700 square metres, WeWork Germany), in Mülheim (around 6,500 square metres, Cologne Chamber of Commerce and Industry), in the Rheinauhafen (around 6,200 square metres, congstar), as well as in Braunsfeld, Ehrenfeld and the city centre. In a nutshell: vacant office units were taken up across all parts of Cologne.

Strong negotiation position for landlords
The high level of demand means that landlords are in a correspondingly good negotiation position, and this has caused rents to rise in recent months. Compared to 2018, the maximum rent soared from EUR 25.00 to now EUR 29.00. The average rent across all leases and units increased from EUR 13.00 to now EUR 14.00.

Outlook: demand for space remains stable in Cologne
The property experts from Greif & Contzen consider demand for office space in Cologne to be on a solid level, despite the fact that the economy has weakened, and expect around 290,000 square metres of space to be taken up in 2020. Availability of space in existing buildings will continue to be low. Larger leases will therefore be accounted for mostly by new construction projects. Owing to these conditions, rents may continue to increase further. Greif & Contzen’s researchers also expect that competition for attractive space is going to intensify in the year ahead. This refers not only to competition between potential office space tenants, but also to the more fundamental competition for development land for different types of use. In addition to quick designation and preparation of construction land, it is necessary that initiated urban development and infrastructure projects are implemented in a target oriented manner. “We are observing a wide range of good ideas, plans and initiated measures in Cologne that are equally beneficial for citizens and for businesses,” says Benedikt Graf Douglas. “A lot would be gained, if any points under dispute are resolved quickly, and the necessary measures for further development of our city are brought underway. We are convinced that the city can tackle and master these challenges.”