Despite the severe economic slump in 2020, many contrary developments could be observed on the German real estate markets. For the office property market, the pandemic initially meant abruptly: home offices and a halt to expansion. However, there can be no talk of disruption. This is shown by the developments in vacancies, completions and office employees.
In order to be able to assess real estate markets, it is first of all essential to take a look at the economy. This influences the development of office employment and thus the office property market like no other factor. The economic forecast by bulwiengesa predicted a 5.4% decline in economic output in Germany in 2020, followed by a modest recovery in 2021 (3.9%) and 2022 (2.7%). The level of real gross domestic product (GDP) before the crisis will thus not be reached again until 2022. The fact is: there can be no talk of a general price collapse; on the contrary, property prices rose by 3.6 % in 2020.
Development of office employees
The economy influences the development of office employees
Thanks to supportive measures such as short-time allowance, the labour market remained stable. Since the economic and financial crisis in 2009, employment in Germany has reacted much more robustly to economic fluctuations than in earlier times. In view of the increasing shortage on the labour market, many companies try to retain their employees even in times of economic downturn. A general slump in office employees is not currently foreseeable, but a sharp decline in mini-jobbers and self-employed workers is. However, the forecast growth in office employees for the next five years, which goes hand in hand with an economic upswing, is, at around 1 % p.a., significantly below the values of the last five years.
Development of the vacancy rates
Vacancy rates rising only moderately so far
Since 2010, office rents have risen, vacancy rates have tended towards zero in some cities, office space requests could hardly be met - supply shortages and extreme demand pressure were the buzzwords that still characterised the office metropolises at the beginning of 2020. For example, vacancy rates in Berlin and Munich were 1.3% and 1.4% respectively, while the average for all class A markets was around 2.9%. As is well known, healthy markets need fluctuation reserves; these were no longer present in many markets.
In the course of the high completion figures and flagging demand, vacancies rose slightly in 2020. However, the current value of 3.4% on average in the seven class A cities does not (yet) indicate a crisis-like development. In the long term, demand is expected to pick up as the economy recovers, so that current forecasts do not foresee a dramatic increase in vacancies in the class A cities.
Development of office space completions
In the class B cities, the forecast increase in vacancies is somewhat more pronounced, but remains at a healthy level of 4.25% in 2024. Based on the overall rather optimistic expectations for the German office markets, a stable rental development without significant fluctuations is also forecast, at least for the central locations. If, as expected, the economic recovery begins noticeably from the middle of the year, this will have a stabilising effect and stimulate demand for office space.
Home office: influence yes, disruption no
The lockdown from spring 2020 has led to a massive expansion of home working - often declared as mobile working in order not to be bound by the standards of the Workplace Directive. At the same time, hygiene requirements and distance rules for working in the office have been increased. It is more than likely that even after the Covid 19 pandemic, a relevant share of office work will be done from home. But does this at the same time mean less demand for office space?
Three factors speak against it. It can be assumed that even after the pandemic very dense office concepts will no longer be in line with demand and will be replaced by occupancy concepts that calculate more space for the individual. Also, the current argumentation of companies in favour of home office is very much based on a one-sided cost discussion that ignores the expenses for working from home. In addition, the current grey areas in labour law between the classification of mobile work and home office are unlikely to last in the long run. Without question, home office will influence office demand. It will not cause a collapse in demand.
Note: This text was first published in the HAMBURG TEAM newsletter (in German language).
Contact person: Alexander Fieback, Team Leader Office Real Estate at bulwiengesa, fieback [at] bulwiengesa.de