November: Office yields remain under pressure

November: Office yields remain under pressure

Chart of the Month
01.11.2021 Author/s: Sven Carstensen and Anna Wolfgarten

The general conditions for offices, especially in the metropolises, have not changed as much as the Corona crisis would have suggested - so the price spiral is likely to continue. This is shown by the recently published 5% Study 2021, which examines the yield potential of the German real estate markets.

Recently, yields in the office sector did not fall quite as sharply - but this had already been indicated independently of the Corona crisis. This is because the price level was already extremely high and thus only small increases were possible. Offices were and continue to be a rather sought-after asset class. As the current study shows, the weighted average of net initial yields across all A-cities was again 2.8%.

Because the conditions on the capital and investment markets as well as the office markets are good, yields will remain under pressure in 2021. In particular, properties with a secure risk profile - with long lease terms, creditworthy and crisis-resistant tenants with low default probabilities - will continue to be in high demand, so that the price spiral is likely to continue.

The pressure in the large markets means that the smaller office markets have not lost their appeal either. IRRs of 2.7 % to 5.7 % are achievable in D-cities in the core area. However, investors need very good regional knowledge. The number of offers in these cities is also rather low. On the other hand, price reductions are to be expected for opportional investments, which have become increasingly important in the past few years due to their pension benefits.

In addition, the EU's disclosure regulation adopted in March 2021 to increase transparency on sustainability issues will increase the requirements for ESG-compliant buildings, processes and owners. For 2021, a comparable development as in the previous year is assumed. Coupled with a lockdown, the first half of 2021 was also still dominated by Corona. Nevertheless, a noticeable collapse in rents is not expected, since despite rising completion figures, the fundamental framework conditions with predominantly moderate vacancy rates and rising office employment figures in the metropolises will not change. Nevertheless, individual locations can reveal a differentiated picture.

About the 5 % Study

The 5% Study has been offering a compact market overview since 2015 and provides a new approach to describing real estate markets. Using a dynamic model, the study determines the probable internal rate of return (IRR) of an investment for an assumed holding period of ten years. This makes it possible to calculate annual returns on investments and to compare the return prospects of different asset classes. The internal rate of return method differs from a static return approach commonly used in the market and is applied by many investors.


You can download the 5% Study 2021 free of charge from our website.

Contact persons: Sven Carstensen, Member of the Board at bulwiengesa, carstensen [at], and Anna Wolfgarten, Junior Consultant, wolfgarten [at]