The Cologne office market closed the year with an estimated 200,000 square meters of space turnover. This is 11 percent above the same period last year. The local market is benefiting from the low vacancy rate of around 4.60 percent. Office rents remain stable at a high level.
In 2024, the Cologne office market will continue to face challenges that will affect leasing activity and market structure. Larbig & Mortag Immobilien is continuously analyzing developments and has found that demand remains sluggish but is growing slowly. Some rays of hope and positive signals pointing to a gradual stabilization will become visible in the transaction figures at the end of 2024.
Framework conditions and market influences in 2024
The economic and social conditions continue to have a lasting impact on the office real estate market. Key trends and challenges in 2024 include:
- Economic uncertainties:
The consequences of the European multi-crisis and geopolitical tensions remain palpable. High energy prices and increased financing costs are weighing on companies. Business areas are being abandoned in Germany and jobs are being created abroad. Concerns about a further downturn are offset by expectations of further interest rate cuts. With further interest rate cuts in 2025, confidence will return and activity will increase accordingly. - New work and home office:
Hybrid working models are continuing to gain ground, prompting companies to adjust their space requirements. Flexible workplace solutions are becoming increasingly important. Tenants are looking for office properties that offer more communal areas, lounges, bistros, or bars on the ground floor. The number of home office days is likely to fall to 1-2 days per week by the end of 2024. A downward trend is therefore already noticeable. - Changes among large tenants:
Companies are questioning long-term leases and often prefer more flexible space models with options to reduce the amount of space rented, which is prolonging the decision-making process on both the tenant and landlord sides. - Location, location, location:
An old real estate agent's phrase, but all the more important in today's world. Companies are focusing their demand primarily on central office space with modern amenities and excellent infrastructure as an additional measure to attract skilled workers back to the office.
Market development and office market figures for 2024
The Cologne office market will remain largely subdued throughout 2024. For the year that is now almost over, Larbig & Mortag expects office space turnover of around 200,000 m². This is slightly above the 2023 figure, but remains well below the 5- and 10-year average.
The vacancy rate rose moderately to 4.60 percent, meaning that around 390,000 m² of office space is available on the market. It is noteworthy that there are currently hardly any vacancies with more than 5,000 m² of contiguous rental space in Cologne (16.00% of the total market in nine properties with just under 62,500 m²).
Rental prices remain stable at a high level. The prime rent is €35.78/m², while the area-weighted average rent has risen to over €20.50/m². ESG-compliant buildings and modern office space in central locations continue to command the highest rents.
However, the brokers at Larbig & Mortag still see problems. For some properties, the cash flow is not sufficient to service the debt. Numerous properties no longer meet current requirements. Revitalization is often not feasible or economical in the existing portfolio. We therefore expect the supply of value-add assets to increase in 2025.
Larbig & Mortag also points out that tenants have often benefited from the past restraint in market demand. "Concessions in the form of rent-free periods and cost subsidies are increasing noticeably," says Uwe Mortag. However, he expects concessions to decrease again from mid-2025, mainly because companies will continue to introduce measures to bring employees back to the workplace.
Outlook for 2025
"The office market in Cologne will remain challenging in 2025. However, we are seeing initial signs that companies are investing more heavily again and developing long-term strategies for their working environments. We expect demand to pick up further, especially in the course of 2025," explains Uwe Mortag, Managing Director of Larbig & Mortag Immobilien.
In 2025, there could be increased transaction activity as a result of further interest rate cuts and a gradual return of confidence in the real estate sector. "In 2024, we have already seen a livelier market in the transaction segment below €15 million. A large number of investors are now emerging from their hiding places and are intensively examining opportunities, partly as a result of the significant price reductions," says Markus Larbig.
Larbig & Mortag Immobilien continued to impress with successful brokerage deals in 2024. The most significant transactions in the fourth quarter of 2024 included the brokerage of 4,400 m² and 1,300 m² at Butzweilerhof. This underscores Larbig & Mortag Immobilien's position as a leading provider in the Cologne office real estate market.
As usual, Larbig & Mortag Immobilien will publish a comprehensive office market report for Cologne and Bonn at the beginning of the year. This will be available free of charge on the website and will provide detailed insights into market developments.
