Despite the ongoing coronavirus crisis, the Cologne office property market has started 2021 with extremely positive quarterly results.
Approximately 80,000 m² of office space was let. This represents an increase of around 125% on the previous year's figure and more than double the space taken to let in the first quarter of 2020 (approx. 35,000 m²).
This high level of brokerage activity in the first quarter of 2021 is attributable in particular to two leases of over 10,000 sq m to the public sector and federal authorities. Both leases were concluded in the Ehrenfeld/Braunsfeld submarket. One is approximately 13,000 m² of office space in an existing property on Josef-Lammerting-Allee and the other is approximately 12,000 m² in a new construction project on Eupener Straße. These two leases thus account for approximately 32 percent of the quarterly result. The significant increase on the previous year's result can be attributed to the initial hard lockdown and a brief economic standstill in the first quarter of last year.
Leasing activity in the 5,000 to 10,000 m² range remains at an extremely low level. Only one lease agreement was concluded in this segment. This is the first lease in this size range since the end of 2019. Due to the ongoing coronavirus pandemic, uncertainty and caution continue to prevail among companies in the 5,000 m² and above segment. For companies in this size category, the internal process with regard to, for example, reducing rental space due to new home office considerations is significantly more lengthy and complex to implement.
The vacancy rate has increased significantly compared to the first quarter of 2020 (2.40 percent) and currently stands at 3.50 percent. However, thanks to the good first quarter, the rate has remained stable since the end of 2020 (3.64 percent). The increase in the number of spaces available for re-letting or subletting was the main factor behind the rise in the vacancy rate last year.
The average rent is rising again compared to the previous year. The average rent on the Cologne office market is currently €13.90/m². This corresponds to an increase of around eight percent compared to the first quarter of 2020, when the average rent was €12.90/m².
Compared to the previous year, significantly more high-priced space (from €20.00/m²) was let again, particularly in the city center, which had a corresponding effect on the average rent. As a result, the prime rent also rose significantly and stood at €25.80/m² at the end of the first quarter. This is well above the previous year's figure of €20.83/m². At the beginning of this year, the maximum rent exceeded the €30.00/m² mark for the first time, reaching a record high for the Cologne office market of €31.50/m². This significantly exceeds the positive result of €28.00/m² achieved in 2020.
Despite the continuing adverse circumstances, Larbig & Mortag is optimistic about the coming quarters in 2021. This is mainly due to a significant increase in enquiries and lease agreements concluded in the segment up to 1,000 m² Office space and the good start to the year. We expect the enquiry situation to remain stable, particularly in this size category, and we anticipate that we will continue to outperform the previous year's results in the long term. In addition, one or two further leases in the range of over 10,000 m² are in the pipeline are in the pipeline, which will have a correspondingly positive effect on future results. We also expect rental prices to remain at their current level. The vacancy rate is likely to increase again in the coming months, as it can be assumed that large companies in particular will offer subletting and follow-up leasing opportunities for parts of their properties as a result of restructuring. "It is therefore not unlikely that we will record a vacancy rate of around 4 percent in the first half of the year. However, this should be considered a 'healthy' vacancy level, as supply and demand are roughly on par," says Steffen Gihr, authorized signatory at Larbig & Mortag Immobilien.
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