But unfortunately, you had front-row seats. So let's focus on more positive topics.

This undoubtedly includes developments on the Bonn office property market. Despite – and here we come back to the topic – all the restrictions and regulations that have accompanied us over the past year. Looking at the pure rental results for the past twelve months in the federal city, one might think that, at least in Bonn, the world has returned to normal.

With the record result achieved since our first market survey in 2013, the Bonn office property market is sending a very clear signal. Office space in Bonn is working well and will continue to be urgently needed. This is good news for local market participants, but it also sends a positive signal to national and international players. The Bonn office real estate market remains stable even in times of crisis. Yes, the largest tenant is and remains the public sector, and a healthy risk distribution certainly looks different. But that's just Bonn – the public sector is simply part of the former capital, and that's a good thing.

This statement was supported by the clear commitment in the coalition agreement of the new federal government. This important signal will further dispel the recurring rumors on the market about a complete move to Berlin. The users who make the city of Bonn the second political center of the Federal Republic of Germany will continue to need additional office space in the future.

My team and I hope you enjoy reading this report and are happy to answer any questions you may have about the Bonn office real estate market.

Bonn office real estate market continues to gain importance

The Bonn office real estate market is regarded nationally and internationally as one of the most interesting B locations. Through our network of the NAI apollo group, we are able to compare our figures with the well-founded market analyses of our partners.

Compared to the top seven cities in Germany, the Bonn office market has a significantly lower stock of office space, which naturally also has an impact on potential rental performance. However, if the market situation is compared with the Stuttgart office market, for example, the record result in Bonn becomes even more apparent. Stuttgart has almost twice as much space available, but the letting performance for 2021 is only around 14,000 m² apart.

In terms of vacancy rates, none of the comparison markets used here is as tight as the office real estate market in Beethoven's city. Rental prices in the A cities are developing at a significantly higher level.

Overall, all office markets in the comparison cities recorded an increase in total rental performance compared to the first year of the pandemic.

The office supply market

Bonn office market with record results

The Bonn office rental market remained impressively stable in the second year of the pandemic. A total of approximately 140,871 m² of office space was let under rental agreements. Such a high overall result has not been achieved in the past ten years. Compared to the previous year, around 45,000 m² more office space was leased (2020: 95,895 m²). Two sectors are primarily responsible for the positive market performance. On the one hand, public administration continues to form the foundation of the Bonn office market (71,017 m² brokered office space), while the University of Bonn (science/education sector) secured around 35,189 m² of office space.

A total of 96 newly concluded rental agreements were identified and analyzed on the Bonn office market. The average rent rose to EUR 12.99/m² and increased by EUR 0.50/m² compared to 2020 (EUR 12.49/m²). Leases significantly below the EUR 10 mark are now almost exclusively being finalized for interim leases or in less sought-after submarkets. Maximum and prime rents are rising noticeably compared with the previous year. The highest rent was concluded in the Federal Quarter at EUR 24.00/m² (2020: EUR 22.82/m²), and the peak rent at EUR 22.53/m² (2020: EUR 21.61/m²), resulting from deals in the submarkets of the federal district and Bonn-Beuel.

Large deals dominate the office market

In 2021 as a whole, three major deals for over 10,000 m² of office space were finalized on the Bonn office rental market. Compared to the previous year, this represents one more lease in this size category. The largest single lease was signed by the University of Bonn for around 22,000 m² of office space at Rabinstraße 8. Furthermore, the Federal Agency for Real Estate was able to lease around 18,623 m² of office space in the property at Godesberger Allee 83-91 for a public user. The smallest of the three major deals was also concluded by the BImA, with around 17,700 m² of office space in the property being let to the public administration.

High frequency in the range between 5,000 m² and 10,000 m²

Demand for office space in the 5,000 m² to 10,000 m² range was also significantly higher than in the previous year. A total of five leases were concluded in this segment. The resulting total area amounts to approximately 39,262 m² of office space brokered, which corresponds to a market share of approximately 27.87 percent. In the previous year, only two leases were concluded in this size category. Three of the deals were concluded by public-sector users. The only lease taken out by a private-sector company was finalized by the consultant CONET in the "Neuer Kanzlerplatz" project in Bonn's federal district.

Space is lacking in all size categories

The main challenge on the Bonn office property market is and remains the lack of available space. This is also evident in the size categories up to 5,000 m². With the vacancy rate falling, the number of leases signed will remain at a comparable level for the full year 2021. In the segment between 2,000 and 5,000 m², five leases were signed and approximately 13,914 m² of office space was let. However, demand between 1,000 m² and 2,000 m² declined slightly. While ten deals were recorded last year, only six deals (7,933 m² of office space) were concluded in 2021, representing a market share of approximately 5.63%

Fewer deals were also concluded in the size category up to 1,000 m² of office space. In total, users were able to secure approximately 18,490 m² (2020: 23,555 m² of office space) under lease agreements with a total of 74 lease agreements (2020: 81 agreements). The slight decline in demand within these size categories is primarily due to the limited availability of space.

Requirements for office space are changing

In times of crisis, adjustments to standards and behaviors are quickly and loudly proclaimed. And this is entirely justified, as sustainable events tend to reveal a number of weaknesses in our usual ways of doing things. Although working from home has not replaced office work, as was often claimed polemically at the beginning of the pandemic, it has now become a standard additional offering at many companies.

Another very central topic in recent months on the Bonn office real estate market has certainly been the sustainability criteria for real estate. In the commercial sector, these are becoming increasingly important under the term "ESG." Many planned new construction projects in Bonn are already being planned with sustainability criteria in mind, such as the "Bonner Flagge" project by project developer Cube Real Estate from Leverkusen. In addition to the planned 100% use of renewable energy, the property will have its own hydrogen production facility on site in line with environmental and climate protection principles (E = Environment). The aspects of social responsibility (S) and sustainable corporate governance (G) are also increasingly on the agenda of large office landlords and project developers.

The fact that charging stations for electric cars alone will no longer be sufficient for a building to be labeled "sustainable" in the future is also demonstrated by the adapted requirements of users. Tenants are setting themselves new minimum standards when looking for office space, such as sustainable building and furnishing materials and comprehensive photovoltaic systems, to name just two examples. And this is where the Bonn office real estate market is reaching its limits, at least for the time being. Adapting existing properties to the desired standards is usually too costly. So the focus is shifting to available new construction space in Bonn. And there is currently still too little of that.

Vacancy

Vacancy rate still too low

All figures for the Bonn office property market in 2021 are at record levels. This also applies to the vacancy rate, which remains at a record low. If there has been one real constant on the Bonn office market for years, it is the vacancy rate, albeit at a critical level. At the end of 2021, the vacancy rate stood at 1.87 percent, falling by a further 0.8 percentage points compared with the previous year (2020: 2.67 percent). This means that only 75,045 square meters of office space will be available on the market in Beethoven's city at the end of 2021. With almost twice as many leases signed, the existing vacancy rate for office space is extremely critical. If we also take into account the lease negotiations for potential large deals that have been carried over from 2021 to 2022, the signs regarding adequate vacancy rates are alarming, especially for companies looking for space.

Current new construction projects under way give the impression that sufficient new space is being added to the market. However, many of these new buildings will not be ready for occupancy until 2023. Not many requests in the past twelve months allowed for this lead time until the start of the lease, so that existing alternatives had to be examined. A healthy lead time before occupancy is usually six to twelve months, depending on the size of the request and the notice periods of the old lease.

Users' desire for speculative construction of new space is offset by the risks project developers face in terms of construction costs and pre-letting quotas set by financing partners. This is a cycle that is difficult to break and optimize.

Industry

Industry distribution – TOP 3

Public administration continues to be the mainstay of the Bonn rental market in 2021 as a whole. In total, users in this sector secured around 71,017 m² (2020: 58,307 m²) of office space through newly concluded leases. This corresponds to a market share of just under 50.41 percent. The number of contracts concluded amounted to 14 rental agreements. With a clear lead and a rental performance of 35,189 m² (market share: 24.98 percent), the science/education sector took second place. All leases within this sector were concluded by the University of Bonn. The University of Bonn could well be considered a public sector entity. The two drivers of turnover on the Bonn office property market are therefore both public in nature. These two sectors account for 106,206 m² of office space leased under rental agreements (market share: 75.39 percent).

This comparison illustrates the dependence of the Bonn office market on demand from public institutions. Companies in the consulting sector bring up the rear of the top three. Overall, a rental performance of around 9,514 m² of office space was recorded here. In addition, the highest rent achieved on the Bonn office market (EUR 24.00/m²) was recorded in this sector.

 

Locations

The city center is the strongest submarket

The trend of recent years is continuing throughout 2021. After the federal district was the most sought-after submarket in the previous year, the city center (Zentrum, Nordstadt, Weststadt, and Südstadt) has now regained the top spot. In total, approximately 77,132 m² of office space was leased. Of office space was recorded. Compared to 2020, this represents an increase of 63,417 m². In our previous year's report, we pointed out that demand remained strong, accompanied by a very low supply of space in the city center. This supply was created at short notice, mainly due to two large vacancies, so that the considerable increase in rental performance was achieved primarily through two of the three large leases of over 15,000 m² identified. These deals alone account for approximately 39,700 m² of the total results achieved in the city center. Overall, the city center accounts for around 54.75 percent of total market activity.

With a rental performance of approximately 31,789 m² of office space and a resulting market share of 22.60 percent, the Bundesviertel district ranks second in the ranking. As in the first half of 2021, Bonn-Beuel brings up the rear of the top three submarkets. Here, a letting performance of around 10,995 m² of office space was achieved. The positive letting result is primarily attributable to a lease by the Federal Central Tax Office for around 8,400 m² of office space near the center of Beuel.

Construction

Construction activity at record high

The only completion of new construction space was in the first six months of 2021. No further completions were recorded in 2021. At first glance, construction activity on the Bonn office property market is at its highest level in the past eight years. The largest project is undoubtedly the unique new "Neuer Kanzlerplatz" development by Art Invest, with around 66,000 m² of office space. Due to the high occupancy rate, only slightly more than 1,000 square meters of rental space is still available here. This is the case for almost all new construction space currently under construction. Of the current construction activity, only around 17,000 m² is available for rent in the course of 2022 for companies looking for space on the Bonn office property market. All other space is either already leased (approximately 110,000 square meters) or will not be ready for occupancy until 2023 (approximately 52,000 square meters). This means that, based on the construction activityalone ,around 9.50 percent of the 179,439 m²will be available on the market in 2022.

Forecast

Outlook for 2022

The Bonn office rental market and market activity in 2022 will depend more than ever on the amount of space that will be available for rent on the market in the coming twelve months. This results in a cautious forecast for the letting performance in 2022 compared with the space take-up in 2021.

At this point in time, leasing performance of between 90,000 m² and 100,000 m² of office space is expected. Over the past five years, average office space turnover in Bonn was around 114,000 square meters. Even with a conservative result of between 90,000 m² and 100,000 m² of rental space agreed in leases, the market will then only be slightly below the five-year average.

Various new construction projects currently under construction will attract new tenants in the course of 2022. Not only the low vacancy rate, but also the availability of space within the next nine to twelve months will draw the focus of companies looking for space to new construction projects. A few spaces in new construction projects will still be available for rent in 2022. Other new construction projects currently underway will not be ready for occupancy until the first quarter of 2023. However, the leases signed here will already have an impact on the marketing results in 2022.

The predicted decline in new construction space is also putting pressure on rents. The average rent will therefore continue to rise in 2022. Maximum and prime rents will remain at roughly the same level as in 2022 – the figures achieved in 2021 are already impressive for the Bonn office property market.

The vacancy rate remains tight and will be pushed further below the 2.0 percent mark by the large deals expected in the first quarter.

We look forward to meeting you again and getting to know you better on the Bonn office property market. Our office leasing specialists will be happy to answer any questions you may have about commercial real estate.