High demand paired with scarce availability leads to increasing prices for office units in the top segment. Top rent of EUR 26.50 per square indicated in Greif & Contzen’s latest market report.

It is not a surprising development: Rent prices in Cologne’s office space market are rising due to scarce availability of space paired with high demand. The real estate experts from Greif & Contzen recorded EUR 26.50 per square metre as the highest rent realised in Cologne’s market in the past year. A year earlier, the top rent had been just EUR 24.80.

Ongoing high demand and scarce availability
According to the latest market report by Greif & Contzen Immobilienmakler GmbH, newly built, restructured and well-maintained modern office buildings in particular, were able to achieve significantly higher rents than in previous years. After all, these are the types of office units that are particularly sough-after and rare. Around 95,000 square metres of space in new commercial properties entered the market in 2017 and Greif & Contzen’s researchers expect that around 80,000 square metres will be added this year. However, the demand for office space in Cologne is much higher than that. “Cologne is a growing metropolis with a thriving service industry and a substantial lack of space,” explains Florian Schmidt, Head of Office Properties at Greif & Contzen. Vacancies continue to decrease, as a result and the property experts from Greif & Contzen expect that rents are going to rise further.

Tenants are increasingly willing to pay high prices for top-quality office space
For the time being, the significant increase of the determined top rent of up to EUR 26.50 per square metre, is only noticeable in the premium office space segment: Office units with top-quality features in locations ranging from average through to excellent. One of the focus topics of the latest market report issued by Greif & Contzen is an analysis of top rents in properties in mint condition. The property experts have found that due to the scarce availability of space, tenants are increasingly willing to pay high prices for first-rate office units. “This is why it is very worthwhile for landlords and property developers to invest into high-quality features for their office units and to keep up those high standards,” says Florian Schmidt. The prime rent based on the definition by the German Society of Property Researchers is currently around EUR 21.50 per square metre.

Average rents are also increasing
Top rents aside, other market segments have also experienced rent increases: The average of all rental contracts concluded in Cologne in 2017, across all segments and locations and regardless of unit size was approximately EUR 13.00 - 80 cents more than in 2016. It is likely that a further increase to about EUR 13.20 will take place in 2018.

Noticeable scarcity of space
“With around 310,000 square metres, office space take-up in 2017 was still the third highest of the past decade. However, companies that need large office units can choose between only a small number of buildings,” explains Florian Schmidt. When no space is available, none can be let, bought or brokered. The search for suitable premises has become harder and it may take longer.
This is particularly obvious in Cologne’s city centre, the traditional focus of attention of the majority of requests for office space. Owing to high rental turnover, low completion volumes and a number of repurposing measures, availability of space in this area has decreased by more than 40 percent since 2011. “With an increase of the unweighted average rent by about 14 percent since 2011, this area has experienced a stronger increase than other parts of the city. The developments in the city centre can be considered exemplary of future developments: The ongoing strong demand situation will cause vacancies to decrease further and average rents to increase,” says Florian Schmidt.

Outlook: Decreasing vacancies, increasing rents
The lack of space will continue to be a pressing issue for Cologne’s office space market in 2018. “There are not enough properties in Cologne that are available at short notice and there is competition from different areas of use,” explains the office space market expert Florian Schmidt. “The volume of completions will be even lower in 2018 than in the year before. This will cause vacancies to decrease further and rents to increase.” The solution outlined by Greif & Contzen’s researchers is a combination of different measures: Improving the standards of older existing office buildings, closing up gaps, and developing new locations that must have excellent infrastructure ranging from broadband access through to traffic links.