News | Press Release

Office market: bottom seems to have been reached

Hamburg, Berlin, July 17, 2024

• Stabilization of yields
• Market polarization between central and peripheral locations continues to increase
• Hardly any major transactions in the first half of the year

During an online press conference on the office real estate market, speakers Tobias Dichtl, Co-Head of Market Intelligence & Foresight at Colliers, Felix Meyen, Managing Director of HIH Invest, and Jens Hogekamp, Managing Director of Becken Development GmbH, provided an outlook on developments in the second half of 2024 and reviewed the first half of the year. In the first half of 2024, large-scale transactions in the office real estate investment market were virtually nonexistent. According to Colliers, the total transaction volume in the first half of 2024 amounted to approximately 2.2 billion euros. Yields are showing increasing signs of stabilization. The average gross yield for offices in the top-7 locations was 4.9 percent in the first half of the year; for the second half, Colliers expects only a slight increase in the gross yield in the top-7 to around 5.0 percent. Tobias Dichtl, Co-Head of Market Intelligence & Foresight at Colliers, comments: “We are seeing a calming of the financing environment, brought about by the shift in interest rates and the accompanying stabilization of the interest rate landscape. We are thus entering a ‘new normal.’ Investors are gradually becoming more active, which is why we expect a slight revival of the transaction market in the second half of 2024.”

Felix Meyen, Managing Director of HIH Invest, adds to his market assessment: "We are seeing capital inflows that are primarily focused on the core segment, with good ESG factors and in central locations." Jens Hogekamp, Managing Director of Becken Development GmbH, takes a similar view: "There is a market for ESG-compliant, modern office space. In addition to prime CBD locations, sustainable and contemporary spaces are also in demand in established inner-city districts such as the industrial Obersendling district in Munich." Becken recently completed the Fabrik-Office here. The office property is 70 percent leased, and full occupancy is expected to be achieved by the end of the year.

The upward trend in prime rents in the top 7 remains unbroken and will continue in the second half of the year, according to Colliers. In the second quarter of 2024, an average increase of 4.6% was recorded in the top 7 compared to the previous year. Dichtl comments: "In particular, the ongoing market polarization in terms of building quality and location continues to drive up rents in the prime segment, while average rents are more heterogeneous." Meyen confirms this view: "In central locations, we are currently letting offices better than we predicted in our business plans two years ago. But offices in peripheral locations are coming under pressure and vacancy rates will rise there."

Working from home has a significant impact on the demand for office space. According to Colliers, around 12% less office space will be required in the medium to long term. The completion pipeline for new construction projects in the top 7 is still well filled. However, the volume will decrease from 2025 due to the decline in demand and is expected to be below the 10-year average in 2026. As a result, the previously rising vacancy rate will stagnate and, according to Collier's forecasts, level off at around 8% from 2026. Meyen comments: "It is a fact that larger users are currently reducing their space, but overall the office asset class is currently being excessively penalized, which also offers opportunities to enter the market. I expect a moderate development for office real estate overall, but definitely not a crisis."

The changing demand for office space is also affecting the criteria for furnishings. Hogekamp says on this aspect: "A sustainable property and flexible floor plans are basic requirements for attracting potential users. In addition, factors such as good, varied architecture, roof terraces or outdoor areas, and spatial flexibility through, for example, different ceiling heights and increased load capacities are increasingly in demand in order to accommodate other uses such as laboratories. High-quality features are crucial for the leasing process." According to Hogekamp, the Munich Fabrik project includes community areas and a barista bar for all tenants, as well as a bicycle lift to the in-house bicycle cellar with changing rooms and showers, and e-charging stations for cars and e-bikes.