After the first half of the year, take-up on the Cologne office market amounted to around 76,000 m². This result is well below the good previous year’s figure (-34%) and the long-term average (-37%). The weak result reflects the overall gloomy economic environment, volatile geopolitical developments and structural changes on the demand side. At present, there is a noticeable reluctance to apply for applications of 500 m² or more, which is further slowing down market activity. This is the result of the analysis by BNP Paribas Real Estate.
“After a comparatively solid start to the year with 45,000 m² in the first quarter, the momentum weakened noticeably in the second quarter. At 31,000 m², there was significantly lower closing activity. The five largest lease agreements of the first half of the year were registered in the first quarter. In the second quarter, no lease agreement for 1,000 m² was concluded, which underlines the weak closing momentum for large-scale spaces. At the same time, the marketing processes have noticeably lengthened, as decision-making and closing processes take significantly more time,” explains David Braun, Cologne branch manager of BNP Paribas Real Estate GmbH.
Over a twelve-month period, the average rent across all contracts has risen by around 8% to €20.90/m². The prime rent for high-quality office space in prime locations, on the other hand, was stable and currently stands at €33.50/m².
Market currently structured on a smaller scale
The low demand for larger space is clearly reflected in the size classes: around 50% of take-up is accounted for by space up to 500 m², twice as much as the long-term average (Ø10 years: 25%).
The distribution of industries is largely influenced by the collective category “other services”. With a share of 32%, this is well above the long-term average (Ø10 years: 18%) and, with 24,000 m², also represents the category with the highest take-up in absolute terms. The remaining market shares are distributed comparatively evenly across several industries, each in the lower double-digit percentage range.
The total vacancy rate has risen by 23% to 558,000 m² over the past twelve months. In contrast, the modern vacancy rate fell by 13% to 131,000 m². This opposing development underlines the continued high demand for modern space while at the same time limiting supply in the high-quality segment.
At the level of project developments, there is a downward trend: space under construction fell by 11% to 149,000 m², of which only 38,000 m² is currently available at short notice. The robust demand for top space is reflected in a correspondingly high pre-letting rate of around 74%.
Prospects
“The Cologne office market is likely to continue to be characterized by a demand-dampening environment in the short term. In particular, larger applications for space are being implemented cautiously against the backdrop of hybrid working models, long decision-making processes and additional uncertainties. However, the low take-up only partially reflects the actual market activity, as the leasing pipeline is well filled. A revival can only be expected with increasing economic planning security,” says Lars Faßbender, Cologne branch manager of BNP Paribas Real Estate GmbH.
Structurally, demand remains clearly focused on modern, ESG-compliant space in central and well-connected locations. In Cologne in particular, this demand is met with limited supply, which is reflected in the declining modern vacancy rate and the high pre-letting rate in the 1-unit locations. At the same time, however, the lack of attractive alternatives is dampening the willingness of many users to move.
The polarisation of the market is likely to intensify further: while high-quality land in good locations remains scarce and stable in price, older portfolios and peripheral locations are under increasing pressure. Due to low construction activity and a declining pipeline, no relief on the supply side is expected in the short term. With a slight economic recovery, leasing momentum is likely to pick up moderately in the second half of the year. Take-up in the region of around 200,000 m² currently appears to be the most likely scenario.
