As occupiers take a more proactive approach to managing their workspace requirements, and the office becomes a place of cooperation and communication rather than an accumulation of desks, landlords will have to adapt accordingly.
Even during the depths of the lockdown in March and April, letting activity never came to a standstill. The majority of corporates postponed decisions because of uncertainties about the effects of the pandemic. However, individual deals, which had been initiated pre Covid-19, came over the line, supporting rental activity. The gradual relaxation of restrictions brought further activity, with the first three quarters of the year seeing 1.6 million m² let in the top 5 markets, just a third down on 2019 levels. The decrease in take-up affected all markets to differing degrees. The two largest office markets, Munich and Berlin, recorded a drop of 25% and 30% respectively by autumn, in comparison Düsseldorf, Frankfurt and Hamburg saw -40%. We continue to see active demand from smaller occupiers, whilst the public sector has been particularly active, accounting for 20% of take-up for the first three quarters of 2020. However, the ‘lockdown light’ during the fourth quarter has done little to help momentum.
Low vacancy rate as a bastion
Whilst we have seen an increase in available space this year, market fundamentals remain strong. The vacancy rates in the big five markets have been falling since 2011, and have therefore had significant upward pressure on rental levels. Prime rents have increased by 39% on average within the top 5 markets, mainly driven by the catch-up of Berlin’s prime rent (81% since 2011). That trend has now been temporarily alleviated. With very little speculative space coming to the market in the new year, and developers wary of green-lighting any new starts, we are not expecting a large increase in supply in the short term. One of the largest office project to be completed in 2021 will be the refurbishment project CULE campus (formerly Treptowers) in Berlin with 85,000m² of office space that has been pre-let to a public occupier.
Flexible concepts spread out
Despite this, we are likely to see demand affected as businesses review their workplace arrangements. Large corporations such as Siemens6 announced the long-term switch to home office and flexible working in office hubs. In 2020, the group launched its Workplace Experience solution Comfy and enables employees to work in different locations in addition to the home office. The solution is to be installed at around 600 company locations worldwide by October 2020. Politically, too, the topic is gaining attention after the Minister of Labour came up with the idea of legally introducing a right to work from home in order to protect employers in the home office. While the proposal is off the table, the intention to give flexible working a framework is still on.
To what extent German office workers will work from home in the future remains to be seen. Intermediate surveys as of Ifo7 and PWC8 predict that up to 60% of companies want to further expand their home office share, with the goal to save up to 20% of space. With several occupiers considering sub-letting (parts of) their space, this is yet another competitor to traditional firsthand supply. As occupiers take a more proactive approach to managing their workspace requirements, and the office becomes a place of cooperation and communication rather than an accumulation of desks, landlords will have to adapt accordingly.
Flexible concepts spread out
Despite this, we are likely to see demand affected as businesses review their workplace arrangements. Large corporations such as Siemens announced the long-term switch to home office and flexible working in office hubs. In 2020, the group launched its Workplace Experience solution Comfy and enables employees to work in different locations in addition to the home office. The solution is to be installed at around 600 company locations worldwide by October 2020. Politically, too, the topic is gaining attention after the Minister of Labour came up with the idea of legally introducing a right to work from home in order to protect employers in the home office. While the proposal is off the table, the intention to give flexible working a framework is still on. To what extent German office workers will work from home in the future remains to be seen. Intermediate surveys as of Ifo5 and PWC6 predict that up to 60% of companies want to further expand their home office share, with the goal to save up to 20% of space. With several occupiers considering sub-letting (parts of) their space, this is yet another competitor to traditional firsthand supply. As occupiers take a more proactive approach to managing their workspace requirements, and the office becomes a place of cooperation and communication rather than an accumulation of desks, landlords will have to adapt accordingly.
Footnotes
6. https://press.siemens.com/global/de/pressemitteilung/siemens-stattet-600-standorte-mit-workplace-app-comfy-aus 7. https://www.ifo.de/en/node/56686 8. https://www.pwc.de/de/real-estate/mehr-home-weniger-office.pdf
