Cologne office property market significantly behind last year – approx. 215,000 m² of office space brokered. The Cologne office real estate market in 2020 is clearly feeling the negative effects of the coronavirus pandemic and remains well below expectations. Only 215,000 m² of office space was brokered, and vacancy rates are rising again for the first time in a long time. However, rents remain stable, and the continuing high level of construction activity and large-scale lettings can be seen as positive signs for 2021.
After a long period of time, or rather for the first time since 2008, the vacancy rate in the cathedral city is rising again, increasing to just under 3.60 percent, which corresponds to approximately 297,000 square meters of available office space. The vacancy rate thus remains at a low level, but increased by a substantial 60 percent compared to the previous year 2019, when it stood at 2.23 percent. This is mainly due to a large number of spaces that were placed on the market at short notice for subletting or re-letting, thereby increasing supply.
After an excellent year in 2019, expectations for 2020 were high, with up to 300,000 m² of office space expected to be let. These expectations were already significantly dampened at the beginning of the coronavirus pandemic in March 2020, and the 215,000 m² of office space brokered is therefore an unexpected but reasonable result for 2020. After a weak first half of 2020, which was 31 percent down on the previous year, the real estate industry had expected an even worse result. By the end of the year, the year-on-year decline had been reduced to around 27 percent (compared with Düsseldorf: 47 percent). The number of rental agreements concluded is a positive highlight. The experts at Larbig & Mortag Immobilien counted and evaluated approximately 380 individual agreements.
Transactions in 2020 were clearly marked by uncertainty and restructuring plans. Companies looking to relocate have mostly had to revise their space requirements due to the pandemic and have considered expanding or introducing home office or mobile working. These processes significantly slowed down rental plans in the period from March to June 2020. Landlords had to respond just as quickly to these issues and show flexibility in terms of both space and contract design. Rental price developments remain largely unaffected by the coronavirus. The average rent closed the year at €13.32/m², just slightly below the previous year's figure of €13.80/m². At the beginning of 2020, the maximum rent was expected to reach €30.00/m² for the first time. This expectation was not met, but the maximum rent achieved of €28.00/m² (2019: €29.00/m²), is positive given the circumstances. However, there were negative effects on the prime rent, which fell sharply to €23.66/m² due to the low number of high-priced leases in the city center. In 2019, a prime rent of €27.14/m² was still achieved, representing a decline of approximately 13 percent.
Another positive sign for 2021 is the three large leases in the 10,000 m²+ range, which account for around 22% of the office space let and thus make a significant contribution to the annual result. The largest single lease in 2020 was the 19,700 m² lease by KPMG AG on the MesseCity site in the Cologne Deutz district. This was closely followed by the lease to AOK Rheinland for approximately 18,000 square meters in Porz-Gremberghoven. The third lease in the 10,000 m² range is the lease agreement signed by the Cologne Main Customs Office for the new "EhrenWert" construction project in Cologne Ehrenfeld.
Construction activity on the Cologne office market is currently at an extremely high level with approximately 276,000 m² Office space at an extremely high level, exceeding even the 2019 figure of 260,000 m² of projects under construction. The office space completed in 2020, totaling approximately 123,000 square meters, was largely absorbed immediately by the market or was already fully leased before construction was completed. It can be assumed that the current construction activities and upcoming completions will lead to an increase in available office space, provided that the demand situation does not improve in 2021.
The outlook for the year that has already begun is more uncertain than ever before. The current lockdown makes it almost impossible to make any far-reaching forecasts for the year as a whole. However, the experts at Larbig & Mortag Immobilien expect the year to unfold similarly to 2020 and anticipate space take-up of around 200,000 m² in 2021. This forecast depends on possible large deals in the city area. Rents should remain largely stable. The average rent and maximum rent will settle at the 2020 level, while the prime rent has potential to increase slightly. The prevailing uncertainty from 2020 will subside in 2021 and companies will enter the leasing process better informed. Home office, mobile or flexible working are no longer foreign concepts. Landlords will have to prepare for slightly higher incentives in 2021.
