Cologne office property market gets off to a slow start in the first quarter of 2020 – only around 35,000 m² of space brokered. (Cologne, April 2, 2020) The Cologne office real estate market has had a very subdued start to 2020, partly due to the coronavirus crisis. Only approx. 35,000 m² of office space was brokered. This corresponds to a decline of approx. 49 percent compared to the first quarter of 2019 (approx. 68,000 m²).
The low level of brokerage activity in the first quarter of 2020 is attributable to various factors. In addition to a continuing low vacancy rate of 2.4 percent (end of 2019: 2.23 percent) and a correspondingly limited selection of office space, the strong fourth quarter of 2019 (approx. 79,000 m² brokered office space) with a large number of deals concluded at the end of the year also played a major role. It is also noticeable that demand has fallen sharply in the first quarter of 2020, particularly in the area of large-scale searches for over 5,000 m² of space. We consider the coronavirus (COVID-19) to be a significant influencing factor in the last weeks of the first quarter of 2020. Prior to this, most contracts were concluded without any adverse effects and the coronavirus crisis had not yet had a direct impact.
No large-scale leases for office space exceeding 5,000 square meters were recorded in the first quarter. The largest lease was concluded by Larbig & Mortag Immobilien with approximately 4,500 m² of office space in the west of Cologne. Compared to the same period in 2019, these large leases accounted for 25 percent of the total result.
The vacancy rate remains low at 2.4 percent, but recovered slightly in the first three months of the new decade. With approximately 192,000 square meters of office space currently available, the supply on the office real estate market increased by approximately 13,000 square meters. this is also attributable to weak letting performance and demand, as well as an increase in the supply of office space. The greatest potential for available office space continues to be in the urban areas of Ossendorf, Mülheim, and Porz/Gremberghoven. Supply in the city center and Deutz remains very limited.
The average rent is also falling compared with the previous year. The average rent on the Cologne office property market is currently €12.90/m². At the end of 2019, it was still €13.80/m². This corresponds to a decline of approximately 6.5 percent. The decline in average rents is due in particular to the low number of lettings in the city center and the associated high rents of over €20.00/m². This is offset by a large proportion of office space brokered in Cologne's urban areas such as Marsdorf and Junkersdorf, where rents are generally significantly lower than in the city center. However, it can be assumed that, despite the current difficult phase, the average rent will level off at between €13.50/m² and €14.00/m² by the end of the year. The prime rent has also declined compared to the end of 2019 (€27.14/m²) and currently stands at €20.83/m². Here, too, an increase is expected by the end of the year.
Making a forecast for the Cologne office property market for 2020 as a whole has never been as difficult as it is at present, with one of the biggest global crises (coronavirus pandemic, COVID-19) ever seen. Demand has currently collapsed due to the ban on contact in Germany and the associated avoidance of viewings and personal appointments. It is not yet possible to predict when this situation will change. Larbig & Mortag Immobilien expects that, despite a possible large-scale letting, the result for the second quarter will be even worse than in the first quarter of 2020. It can be assumed that the market will pick up significantly once the coronavirus crisis has subsided, as many companies will be facing changes. This may have both positive and negative effects on the market and is currently difficult for any real estate expert to predict. However, it is unlikely that the positive results of previous years will be achieved. Larbig & Mortag Immobilien has therefore also downgraded its forecasts for the full-year results.
Special section on the coronavirus crisis:
"We at Larbig & Mortag Immobilien would also like to take this opportunity to inform our customers about the outlook for the commercial real estate market in the Cologne, Bonn, and Leverkusen region. It is important to us to remain in close contact with tenants and landlords. This is the only way we can react quickly to the market. We assume that the effects of Covid-19 will not be felt until the second or third quarter," says Uwe Mortag, managing partner of Larbig & Mortag Immobilien. Below is a brief overview:
Investment/real estate acquisition:
We are currently seeing very different developments. Large transactions are most affected by the current global crisis. A disproportionate number of deals are currently being postponed or canceled. On the other hand, financially strong family offices or wealthy private individuals, pension funds, and foundations are benefiting from a high level of transaction security in the current situation. However, more than half of all investors expect more favorable conditions. In addition, asset classes have changed significantly. Office properties, industrial and logistics properties, and retail properties with a large proportion of local suppliers are in high demand. Due to the crisis situation, properties with a large proportion of hotels, fitness facilities, or retail outlets are currently difficult to sell.
Rental prices are developing differently depending on the asset class:
Larbig & Mortag Immobilien is currently seeing high demand, particularly in the logistics real estate sector, and thus also a tendency toward rising rental prices. Space for food and pharmaceutical companies and online retailers is currently the main focus. Rental price developments for office properties are not yet foreseeable. In the short term, the mandatory introduction of home office working in companies is also having an impact on the real estate market. Providers of flexible workplace solutions (co-working and business centers) are particularly affected.
However, the coronavirus crisis is having a direct impact on hotel and retail properties. This is where the greatest decline in demand is being recorded, and a decline in rental and purchase prices is therefore also to be expected. Especially in times of crisis, the conditions achieved recently are perceived as overheated.
Transaction process and viewings during the coronavirus pandemic:
Larbig & Mortag Immobilien is currently seeing a very high level of willingness to prepare real estate transactions in the usual manner, even without a physical viewing on site. This is mainly thanks to modern technology. Thanks to Facetime, Skype, and other video tools, viewings with investors or tenants can also be carried out at present. The BaFin has taken an important step in this direction and recently officially approved digital inspections for the purpose of determining the mortgage lending value. If the property is low risk and of high technical quality, technical due diligence can be carried out on the basis of a reliance letter. However, it is to be expected that the lack of a personal impression on site will be made up for at a later date.
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