However, the feared slump has once again failed to materialize. On the contrary, Cologne's office real estate market has performed very well overall in 2021 and overcome the problems it faced. Demand, driven by public administration, is even higher than in 2019. In a nationwide comparison, the cathedral city is thus closing 2021 with record figures. With a 39 percent increase in rental performance compared to the same period last year, Cologne ranks second among the TOP 7.

The vacancy rate, which rose during the coronavirus pandemic (approx. 4.5 percent), is now falling back towards 3 percent and will lead to a shortage of supply in 2022, similar to 2019.

However, the strong demand and space absorption must be viewed with caution. When it came to demand from private-sector companies, the question of the future use of office buildings was clearly at the forefront. Many workshops were held in companies on this topic, and considerations regarding space utilization in combination with home office/mobile working were discussed. Large companies are also asking themselves what function a headquarters will still have in the future. This exploratory process had a significant impact on demand for new office space of 1,000^{square meters} or more. The concrete effects of these developments will not become apparent until 2023. The feared impact of home offices on demand remains minor at present, but will become part of the future world of work.

The biggest influences on future leasing activity are likely to be rising construction prices, material availability, and the rapid introduction of ESG guidelines. It remains to be seen how the supply of available new office space will behave in terms of rental prices. In our view, it will hardly be possible to offer new construction on the market at significantly less than EUR 16.0^0/m². In central downtown locations, prices will no longer be below EUR 25.^00/m².

City comparison

Cologne has the lowest average rent

In a nationwide comparison of the top seven cities, Cologne ranks fifth with approximately 300,000^m² of office space^brokered . It is followed by Düsseldorf with 284,800^{m² and} Stuttgart with 154,000^{m² in} sixth and seventh place. As in Cologne, the office markets in the top four also closed with significantly higher rental performance than in the previous year: Berlin (+16 percent), Munich (+16 percent), Hamburg (+43 percent), and Frankfurt (+36 percent).

Cologne is slowly catching up in terms of prime rents and is now on a par with Düsseldorf. In particular, the fact that the €30 mark has been exceeded for the highest rent is a positive sign for the Cologne office market. Despite the highest average rents in recent years, Cologne still lags significantly behind other cities in this respect. In Berlin, which leads the field, the average rent is a whopping 92 percent higher than in Cologne.

The office market

Very good annual results

The Cologne office real estate market achieved office space turnover of approximately 300,000^m² in 2021^, which is unexpectedly well above the total annual result for 2020 (approximately 215,000 m²). This is mainly attributable to large-scale leases by the public sector. Thanks to the high letting performance, the vacancy rate has fallen back below four percent. The average rent has also increased, which is attributable to the letting of various new construction projects and high-priced space in the city center. Overall, the rise in rental prices is also due to higher construction and raw material costs. Both the maximum and prime rents closed 2021 at record levels.

Six deals in the over 10,000^m2 range

The public sector dominated 2021 in the segment above 10,000^m². Four leases were^signed in the Ehrenfeld/Braunsfeld submarket in the range of 12,000^{m² to} around 20,000^{m², with} a total size of around 64,500^m². In addition, there is a lease in Mülheim (Holweide) with approximately 18,000 m². This means that^{a total of} around 82,500^m² in the range of over 10,000^m² was leased^by the public sector. Another completion was the start of construction of a 12,800^m2 property for own use by the Kassenärztliche Vereinigung (Association of Statutory Health Insurance Physicians). Unfortunately, companies from the private sector are very cautious in this size category. This is mainly due to restructuring processes that have not yet been completed as a result of the coronavirus pandemic and new working models.

In the previous year, only three leases in this size category were recorded. These included the lease to KPMG AG Wirtschaftsprüfungsgesellschaft in Cologne/Deutz with 19,700^{m2 and} the lease of 18,000^{m2 in the} AirportBusinessPark by AOK Rheinland.

The 2,000^{m² and} 5,000^m² segments^are also^sending positive signals

In the 2,000^{m² to} 5,000^m² segment,^{there has been} a significant improvement compared with the previous year. By the end of the year , 15 leases totaling approximately 53,000^m2 had ^{been signed} in this size category . This upturn was already noticeable in the middle of the year and continued through to the end of the year. In 2020, only eight leases totaling 28,422^m2 were^recorded in this segment.

Many requests that were put on hold at short notice in the first quarter of 2020 were revived at the end of 2020 and were finalized in the course of 2021. Many companies changed their requirements in the wake of the pandemic, which led to delays in the search for office space. This^{can be seen} as a positive catch-up effect in 2021 in the range of 2,000^{m² to} 5,000^m².

Lots of activity in the 1,000^{m² to} 2,000^m² segment

27 leases and thus 12 more deals than in the previous year 2020 saw 1,000 to 2,000^m2 of space^leased . At 36,262^m² , the letting performance^was significantly higher than the previous year's result (23,113 m²), at 56 percent. This means that this segment is close to the level of 2019, i.e. before the start of the coronavirus pandemic. In 2019, 34 leases were concluded for 47,000^{m² of office space} . This segment also^achieved the highest average rent at^EUR 15.87^{per square meter} . This shows that even in this size category, the worst of the coronavirus pandemic appears to be over and the office market is currently on a very positive path.

266 lease agreements concluded in the up to 1,000^m² segment

With 82,979^m² of office space^brokered , reflected in 266 rental agreements, the segment up to 1,000^m² was^less lively than in the previous year. However, with a share of 83 percent of individual deals, the result is still positive. In 2020, a total of 348 individual deals with a total volume of around 110,000 ^m² were ^recorded in this size category. As in the previous year, the highest rent in this segment was also achieved this year. For the first time, this exceeded^EUR 30.^00/m². The terms in this size category are on average significantly shorter (less than five years) than in the larger request areas. This is due, for example, to the difficulty of calculating growth for young or start-up companies.

Vacancy

The vacancy rate is declining

Since the second quarter of 2020 and the associated first lockdown due to the coronavirus pandemic, the vacancy rate has risen steadily. This was an unfamiliar situation for the Cologne office market, as we had been recording declining office vacancies since 2011. In 2021, after a period of around one and a half years, we are once again seeing a decline in vacancies. This is mainly attributable to large-scale lettings by the public sector. The year 2021 will close with a vacancy rate of 3.20 percent, which^{corresponds to} approximately 262,000^m2 of available office space. At the end of 2020, the vacancy rate was 3.64 percent, around 12 percent above this year's result. The decline in the vacancy rate and the overall extremely low vacancy rate will also lead to excess demand or extremely limited supply in some areas of Cologne. Particularly noteworthy here are large-scale searches in the 5,000^m2+ segment,^which are encountering a very limited supply of office space available at short notice on the Cologne office market.

Rents

Rental prices at an all-time high

At the end of 2021, rental prices are at record levels across all sectors. At EUR 14.^38/m² , the average rent has exceeded the EUR 14.^00/m² mark^{for the first time and} is eight percent higher than the previous year's figure. The average rent is not representative of the "city center" area, where we are now almost exclusively seeing asking prices of over EUR 20.00^/m². At EUR 27.63^{per square meter} , the prime rent is^also above the previous high of EUR 27.14^{per square meter achieved} in 2019. Particularly high-priced lettings in the Rudolfplatz and Kaiser-Wilhelm Ring areas contributed to this exceptionally high result. The previous year's peak rent of EUR 23.^{66/m² was} significantly exceeded. With a maximum rent of EUR 31.^50/m² ,the EUR 30.00 mark^was broken for the first time this year. This figure was achieved in the Kaiser-Wilhelm-Ring area

The rise in rental prices is also attributable to increased construction and material costs. In various new construction projects, rental prices have been raised by up to 10 percent in recent months. The costs for renovations in existing properties have also risen significantly and are affecting asking rents for existing properties.

Industries

Industry distribution TOP 3

Due to large-scale leasing by the public sector, the industry distribution is extremely one-sided. With a market share of around 36 percent, public administration is far ahead of the next industry, healthcare. While companies in the private sector remained cautious due to the coronavirus pandemic, demand from public administration remained unbroken. In addition to its percentage share of the total market, this is also^underlined by the total rental performance of around 109,000^m² , of which 82,500^m² is^{attributable to} five leases in the over 10,000^m² range.

At the end of 2021, there were further large-scale requests from the public administration sector on the Cologne office market, which are expected to be finalized in the course of 2022. This sector will therefore remain among the top three in the future, if not continue to lead the way.

Locations

Location ranking

At around 79 percent, rental performance was significantly higher in the area to the left of the Rhine than in the area to the right of the Rhine, which had a market share of approximately 21 percent. The Ehrenfeld/Braunsfeld district performed particularly well this year, with 98,826^m² of space^let . This means that more office space was let in Ehrenfeld/Braunsfeld than in the entire city center (77,215 m²).This high figure is due in particular to four leases by BIMA (public sector)^{for office space} in excess of 10,000^m². A major advantage of this district's location was undoubtedly the selection of available existing properties in the size range of over 10,000^m², which are now only available in small numbers in the Cologne city area and at short notice.

On the right bank of the Rhine, the district of Mülheim/Holweide is the strongest performer. Here, too, there was a large-scale lease to the public sector covering around 18,000^m², which had a correspondingly positive impact on this result.

Construction

Construction activity is declining slightly

At the end of 2021 , around 200,000^{m2 of office space} was under construction in Cologne. This represents a decline of 27 percent compared to the previous year (276,000^m2). Completions were^{significantly} below the previous year's figure (100,000^m²) at around 53,000^m². The decline in construction activity can be attributed to 2020 and the associated uncertainty on the office market. Due to the coronavirus pandemic, some new construction projects were put on hold because necessary anchor tenants wanted to rethink their requirements in light of new working models and the implementation of home offices and have postponed signing lease agreements for the time being. Thanks to the good year in 2021, a certain catch-up effect can be expected, and it is hoped that construction activity will pick up again, keeping the vacancy rate at its current level.

Forecast

Outlook for 2022

Fortunately, our forecast for 2021 was more negative than the final overall result for 2021, with rising rents and a letting performance of 300,000^m2. However, this also reflects the fact that reliable forecasts are much more difficult to make in the current climate. There are currently further large-scale requests from public authorities looking for office space in Cologne, and it can be assumed that these will result in leases totaling 50,000–100,000 m² in the first half of 2022. 60.000^{m2 of office space} . Positive signals are also coming from the private sector, where there are one or two large requests^{for office space} in excess of 5,000^m2 . We will therefore remain at least at the previous year's level, and we can again expect to let around 300,000^{m² of office space} by the end of 2022.

The vacancy rate also provides a good indication of how the apparent bottom of the trough caused by the coronavirus pandemic has been overcome. For around a year and a half now, i.e. since the start of the pandemic, the vacancy rate has been falling again and has dropped to below 4 percent. It can be assumed that the vacancy rate will remain at a level between 3.5 and 4 percent in 2022 due to stable demand and consistent supply. In inner-city locations, supply will remain extremely limited and the vacancy rate will be only around two percent.

Rents will continue to rise in 2022. In particular, higher construction costs are leading to price increases for new construction projects and office expansions. However, looking at the top seven cities (lowest average rents), it is clear that Cologne offers an extremely attractive rental environment for office seekers despite rising prices. The maximum rent will exceed the €30.00/m² mark again in 2022, and the average rent could break through the €15.^00/m² mark. Due to the coronavirus pandemic and the uncertain outlook, private sector companies are showing restraint when it comes to lease terms. In particular, terms of more than 10 years for leases of over 1,000^m² are no longer a given. Construction activity is^{expected to remain} at a constant level of around 200,000^m². Completions will increase significantly in 2022, as various new construction projects, such as the "Haus am Rudolfplatz" and the "Quadra" in the AirportBusinessPark, are in their final stages. A total of 120,000^m² is expected to be completedⁱⁿ 2022. Overall, the Cologne office rental market can be very pleased with the overall result for 2021, as rental performance at this level was not expected. It seems that many companies have finalized their thoughts on future working models and are now starting the next step of searching for suitable office space. The current demand situation underscores this and allows us to look ahead to 2022 with extreme optimism.