Market Perspectives of Commercial Real Estate | Office Market

Market Perspectives of Commercial Real Estate | Office Market


Office
09.10.2020 Author/s: Oliver Rohr
Office vacancy rate in A and B cities, 2009-2024. source: bulwiengesa AG, RIWIS; graph: ZIA
Office vacancy rate in A and B cities, 2009-2024. source: bulwiengesa AG, RIWIS; graph: ZIA

Overall, the vacancy rate in the seven office metropolises will move slightly upwards until 2024; the peak in the class A cities is expected in 2021 and 2022. A calculation of the foreseeable average scenarios of vacancy development for the A-cities shows how strong the effects can be: between an - for the year as a whole - at least minimally positive growth in office employment in Germany of 0.07 % p.a., a stagnation scenario or a reduction in office employment of 0.5 % p.a. With zero growth in office employment, a vacancy rate of approx. 4.9 % is expected in the seven class A cities by 2024, which roughly corresponds to the 2016 level. With a slight decline in employment, the vacancy rate rises to approx. 6.7 % in the top office locations by 2024 according to scenario two, which would have a much more lasting effect on office rents.

Home office trend causes headaches for many

Home office and mobile working were of central importance during the lockdown from mid-March 2020, both in concrete implementation and, above all, in the media discussion. In recent years, the home office and mobile office share in Germany has remained constant at around 12 %, while it was already significantly higher in other European countries, at around 25 % in France and 30 % in the Netherlands. Connected to the home office are the digital prerequisites such as powerful WLAN, secure VPN connections, cloud computing and - quite simply - adequate equipment with suitable hardware. But the legal requirements must also be designed pragmatically. This applies, for example, to the workplace ordinance, which was modified in 2016 with rules for the home office.

Most surveys and contributions to the discussion in this context currently assume that the home office trend will mean that around 10 % less office space will be required in the future than the average office space requirement in 2019. International and national corporations such as Facebook and Siemens are announcing major investments to make the home office completely or for one to three days a week possible. Workspace service providers are going one step further and, in addition to this trend towards home offices, are also seeing a parallel need to reconfigure narrow open-plan and group offices in order to comply with distance rules or to better meet social and process-oriented needs.

Historically, the decisive factor for the German office real estate market and per capita space utilization has been the extent to which office employment has increased or decreased. Most recently, office space per capita in the A-cities fell from around 27 sqm in 2006 to around 25 sqm in 2019, which was accompanied by an increase in office employment of around 2 million people in Germany as a whole over the same period. This effect has certainly had a greater leverage effect on the real estate market and will continue to do so in the future than, for example, details in the sector-dependent work organization.

Conclusion

Commercial real estate has so far been relatively unaffected by the effects of the pandemic. This is particularly true for office real estate, for which the fundamental indicators remain positive. Here the market is benefiting from the excellent starting situation before the crisis - vital demand, particularly in the metropolitan areas, was offset by very limited supply. However, this can only be seen as an interim conclusion. Possible slumps in demand cannot be ruled out in the event of a renewed lockdown scenario and the associated recessionary distortions.

 

Note: The autumn report can be downloaded from the ZIA website (only in German language).

Contact person: Oliver Rohr, Project Manager Office, rohr [at] bulwiengesa.de