The Cologne office market recorded a take-up of 107,000 m² by the end of the third quarter. This figure was significantly lower than both the previous year’s figure (-40 per cent) and the ten-year average of 187,600 m² (-43 per cent). However, this weak market performance should be viewed against the backdrop of the continuing challenging market environment and the lack of an economic recovery to date. This is the conclusion of an analysis by BNP Paribas Real Estate.
Market activity has shown a similarly moderate trend across all three quarters so far this year. The third quarter saw only one slightly larger deal, namely the lease signed by epilot, a cloud platform developer for energy companies (1,800 m²). At the same time, the number of registered lease agreements fell compared with the two previous quarters. The Cologne office market therefore remains characterised by a high degree of caution on the demand side. “Against a backdrop of economic uncertainty and structural changes in the world of work, many leasing decisions are currently being scrutinised closely, which is noticeably prolonging the letting process,” explains David Braun, Cologne branch manager at BNP Paribas Real Estate GmbH.
The prime rent remains stable at €33.50 per square metre. The average rent remains unchanged at €20.90 per square metre.
Let-out activity is currently fragmented, whilst the pre-let rate is rising significantly
The breakdown of take-up by sector has so far revealed a broadly diversified picture of demand. With a share of take-up of just over 13 per cent, consultancy firms represent the strongest individual sector. Public administration, which is usually one of the key sources of demand in Cologne, has, by contrast, only featured sporadically to date and is consequently clearly under-represented.
The letting market is currently characterised by a high degree of fragmentation. Cumulatively, around 76 per cent of space let falls into the size categories up to 1,000 m², which is significantly higher than the long-term average (42 per cent). This reflects the reluctance of many companies to make long-term and space-intensive letting decisions.
The vacancy rate has risen by 19 per cent over the last twelve months to 564,000 m². It is encouraging, however, that the vacancy rate for modern premises has bucked the trend by falling by 9 per cent. Furthermore, there are currently almost no modern premises of ‘first-occupancy’ quality standing vacant at short notice. At the same time, the volume of space under construction has fallen by 11 per cent to 149,000 m². Both the total volume of new-build projects and the space still under construction – which currently stands at just 38,000 m² – are at their lowest levels for years. As a result, the pre-let rate has risen to an above-average 74.5 per cent, underlining the high demand for modern, future-proof office space.
Outlook
“The outlook for the Cologne office market remains characterised by a challenging market environment for the time being. Many companies are continuing to adopt a cautious approach and are scrutinising leasing decisions very carefully in light of economic uncertainties and the ongoing changes in the world of work. Against this backdrop, take-up is likely to fall short of the long-term average by the end of the year. However, should the economy gradually pick up in the final quarter – for which the recent rise in the ifo Business Climate Index provides the first positive signals – letting activity could also regain some moderate momentum,” said Lars Faßbender, Head of the Cologne branch of BNP Paribas Real Estate GmbH.
On the supply side, the trend towards lower construction activity is likely to become even more entrenched. At the same time, the high demand for modern, high-quality space and the marked selectivity of tenants are supporting rent levels. Against this backdrop, prime rents are expected to remain stable at a high level of €33.50/m² until the end of the year. Cologne is therefore likely to benefit from a gradual economic recovery, although the market is not yet expected to show the same momentum seen in previous upturns.
