(Bonn, January 2023) Even in the crisis-ridden year of 2022, the office rental market in Bonn remained dynamic and is vigorously standing up to the multiple crises. The Bonn team at Larbig & Mortag Immobilien recorded total lettings of 101,536 m² of office space. Average rents rose slightly, with prime and maximum rents increasing significantly. Public administration remains a driving force with a rental performance of around 58,000 m².

Letting activity

In 2022, the commercial real estate specialists at Larbig und Mortag Immobilien, exclusive partner of the NAI apollo group, recorded a total of 88 leases (2021: 96 deals) on the Bonn office market. 65 of these lease agreements were finalized by companies with a size of up to approx. 500 m². The largest single lease of 2022 was concluded by a public-sector user with around 23,000 m² of office space in the federal district. Overall, a total of approximately 101,536 m² of office space was leased under rental agreements. Compared to the previous year 2020, this represents a decline of just under 40,000 m² (2021: 141,871 m²), but considering the current impact of the war in Ukraine and the resulting economic restrictions, as well as the uncertainty felt by market participants throughout Germany, the overall result can be considered positive. The rental performance for 2022 is not far from the five-year average, at around 114,000 m² of rental space.

public administration remains the strongest sector

As in previous years, public administration continues to form the foundation of the positive letting activity in Beethoven's city. Overall, users in this sector secured around 58,019 m² through newly concluded leases. This corresponds to a market share of approximately 57.14 percent. It is interesting to note that in the last quarter of 2022, only one lease was signed by a public-sector user. This confirms the trend observed throughout the year, namely that inquiries from public-sector users are currently declining. The Federal Agency for Real Estate Tasks, in particular, is primarily reviewing its own existing properties for new user requests. Although further negotiations are currently underway for third-party properties, they are not at the level seen in previous years. Compared with the full year 2021, around 13,000 m² less office space has already been leased for 2022, with 71,017 m² of space under lease agreements.

Vacancy rate shows slight recovery at first glance

The vacancy rate in Bonn, which has been very low for several years, is recovering somewhat in the course of 2022 and currently stands at 2.20 percent. This means that approximately 88,355 m² of office space is currently available on the Bonn office rental market. But how sustainable is this "recovery"? In some of the larger vacant properties, further negotiations are already underway, so that a further reduction in the vacancy rate to below the 2 percent mark is expected at the beginning of 2023. Furthermore, many companies have paused their searches during 2022 to wait and see how the markets develop. The need for a change of location is therefore being postponed for the time being, which means that increased demand could be seen at the end of 2023. In addition, extremely high construction costs and a significant rise in interest rates for construction financing compared to previous years continue to conflict with planned project implementations.

Average rent rises slightly – maximum and peak rents jump significantly

The average rent rose slightly by EUR 0.19/m² year-on-year to around EUR 13.18/m² (2021: EUR 12.99/m²). The development of average rents confirms the search behavior observed among users in previous periods and shows that rental space significantly below the EUR 10 mark is now only available for interim leases or in less popular submarkets. Maximum and prime rents increased significantly compared to the previous year. The maximum rent was concluded at EUR 31.66/m² (2020: EUR 24.00/m²) for a property in the federal district, and the prime rent was EUR 24.12/m² (2020: EUR 22.53/m²), resulting from deals in the submarkets of the federal district, Bonner Bogen, and Bonn-Beuel. In times of multiple crises, the development of rents is all the more remarkable. Many companies are willing to pay more rent for properties/projects in sought-after submarkets with modern and sustainable building facilities.

The federal district is by far the most sought-after sector

Every year it's the same story – at least in the constant interplay between the two top submarkets of Bonn's office rental market (city center and federal district). The federal district is the strongest submarket for 2022 as a whole. A total of around 57,824 m² of office space was let on a lease agreement within the submarket with 15 lease agreements concluded. As a result, more than half of the total rental performance of the Bonn office market was achieved in the federal district (56.95 percent). Three of the four large leases exceeding 10,000 square meters, which already account for around 52,724 square meters, are primarily responsible for the good letting result. The city center follows at a considerable distance with a letting performance of just under 20,000 m² of office space under lease agreements.

Forecast for 2023

In recent years, it has been challenging to forecast developments for the next 12 months. This will not be made any easier by events in the course of 2022. The uncertainty among decision-makers will also be noticeable at the beginning of 2023, and lease agreements for larger rental spaces are expected to be concluded based on space requests already initiated in 2022.

How crisis-proof the Bonn office market will prove to be next year depends primarily on the behavior of companies looking for space. In Bonn, new developments are available for short-term leases for the first time in comparison to previous years. In previous years, this was hardly possible, as many new spaces were already leased well before completion. If the reluctance of prospective tenants turns back into confidence to commit to a new office space for the long term, a large number of large deals starting at 2,000 square meters could be closed on the market.

If the new space in Bonn that will be ready for occupancy in the short term is taken off the market in the first six months, a further increase in rental price indicators will already be apparent by the end of the first half of the year – average rents in particular are still at a lower level in direct comparison with prime and maximum rents.

However, if uncertainty remains a key factor for decision-makers in 2023 and no new tenants are found immediately for the properties completed in 2023, the vacancy rate will continue to rise slightly. That is, if the low vacancy rate can be described as a sign of easing.