Above-average take-up figures were reported in Cologne’s office space market at the end of 2022; expectations for 2023 are positive

2022 was a challenging year. The consequences of the pandemic, the war in Ukraine and the related enormous increase of energy costs led to a gloomy mood in the German economy, a further intensification of actual supply problems, as well as to sales losses, an economic downturn and high inflation. Cologne’s office space market fared surprisingly well under those testing conditions. Energy expenditure gave rise to significantly higher ancillary costs for tenants; nevertheless, above-average take-up figures were reported for the city’s office space market at the end of the year, despite all inhibitory factors and price increases. Around 315,000 square metres were taken up – considerably more than the average of the past ten years (300,000 square metres).

All eyes are on energy costs
It has become clear that office users and investors are not easily scared off, and that there is great trust in the stability of Cologne’s office space market. However, the real estate experts of Greif & Contzen observed at the end of the year that users tend to take a more critical look at office buildings, owing to the fact that ancillary costs are rising in line with energy prices. “Rental agreements for office space usually have terms of at least five years, often featuring a renewal option, and even terms of up to 20 years are agreed on now and then,” says Andreas Reul, Head of Office Properties at Greif & Contzen Immobilienmakler GmbH. “Even if energy prices are to remain high for the time being, any decision should be made based on an overall consideration of the entire rental term and the quality features of the building and the location.”

Focusing on factors that are important in the long term
Greif & Contzen’s advice is not to dwell too much on concerns due to the currently high energy costs. When it comes to deciding for or against an office building, the real estate experts recommend focusing on those factors that reflect the direct and long-term benefits of the building for working processes and staff members. These include, for example, the building’s suitability for modern office space concepts, the internal infrastructure of the building, as well as traffic links, the local supply infrastructure and other geographical advantages. “For an ideal solution, those aspects should be paired with lower energy-consumption thanks to corresponding building technology, and sustainability criteria, which are becoming ever more important, should also be addressed more effectively,” Reul explains.

Demand is sustained by public facilities
The demand that gave rise to a take-up of 315,000 square metres was sustained primarily by public facilities. The two biggest units let were 44,800 square metres taken up by a public-sector facility and 38,800 square metres taken up by the city of Cologne. Public users accounted for 42 percent of all space taken up.

Sharp increase of average rent
The highest rent agreed upon was EUR 36.00 per square metre. The prime rent increased to EUR 27.90 per square metre, and the unweighted average rent rose sharply from EUR 15.30 to EUR 16.70 per square metre.

2023? – no significant market decline in sight
“If siting decisions are made based on medium and long-term considerations over the coming weeks and months, we can be optimistic that the office space market will once more prove crisis-resistant in 2023,” says Andreas Reul. The economic research institutes are also predicting a rather mild recession these days. “We assume that the economic downturn will not have any severe consequences for Cologne’s office space market,” Reul points out. Available existing space remains scarce, owing to the low vacancy rate, and it will be necessary to pass on high land and construction costs of new buildings through the rent, and this will back up the level of rent prices.