The Cologne office property market will not take off in the first quarter of 2023

Space take-up in the first quarter of 2023 failed to match the strong year-end result of 2022. The Cologne office real estate market closed the first quarter of 2023 with approximately 45,000 m² of office space leased. This means that the result for the Cologne office real estate market is 34 percent below the previous year's result (first quarter of 2022: 68,000 m²). With this interim result, however, the cathedral city is still maintaining a solid level of letting, and the number of contracts concluded can also be described as good. The majority of deals, over 50 percent, were in the under 500 m² segment. The most significant deals were the lease signed by KZVK for approx. 9,100 m² in the GerlingQuartier (advised by Larbig & Mortag Immobilien on behalf of the tenant) and by The Boston Consulting Group with approx. 7,400 m² in Laurenz Carrè near Cologne Cathedral. The only contracts not concluded in the market were for properties larger than 10,000 m².

Meanwhile, demand remains buoyant, with many companies seeking to review their current office requirements. It remains to be seen whether this will inevitably lead to relocation decisions. However, subletting space is likely to continue to increase as companies seek to reduce excess space due to increased home office hours. "We expect further exciting tasks in the course of the year and thus also new potential users for the Cologne office space market. In central locations in particular, a number of exciting new construction projects will come onto the market, creating new and modern opportunities for companies. we are mainly observing a reduction in space requirements in favor of central city locations and higher-quality amenities," says Uwe Mortag, Managing Director of Larbig & Mortag Immobilien.

The factors influencing the rental market will continue to be clearly felt at the beginning of 2023. The war in Ukraine is still slowing down decision-making among companies in the greater Cologne area. Home offices, NewWork, and decarbonization (ESG, sustainability) are also the most frequently cited requirements of today's users. In the important labor market, the work ethic of the next generation (Generation Z) has changed in an unprecedented way. Declining employer loyalty, a willingness to job hop, a greater work-life balance, and a desire to avoid responsibility while enjoying a four-day week and higher wages are not in line with the current economic environment, which is characterized by fears of recession in Germany and the Cologne region. As a result, companies must rise to the challenge, because not only recruiting new employees but also retaining existing ones has become a key task. All of these issues will have a significant impact on the local Cologne office market over the next 12 months.

"The traditional office is still facing significant change, which even the current New Work trends will not be able to resolve. We remain convinced that working from home will not become synonymous with the office. Social contact is particularly important to young employees in the wake of the coronavirus pandemic. The office must therefore significantly improve communication and knowledge transfer. For this reason, central office locations with very good infrastructure are gaining significantly, so that "the best vs. the rest" will be a trend in the coming years," says Uwe Mortag, managing director of Larbig & Mortag Immobilien.
The distribution of industries changed significantly at the beginning of the year compared to the same period last year. While public administration dominated recently, the service and consulting industries are now clearly ahead. The service sector accounted for approximately 33 percent, followed by consulting with approximately 25 percent and healthcare with approximately 10 percent.
The vacancy rate remains low at 2.9 percent. This means that the office property market in the cathedral city currently has around 250,000 square meters of vacant office space available.

Rents are stabilizing at a high level. The €30 mark has long been established, and central downtown locations are already approaching the €40 mark thanks to high-quality offerings. The prime rent for the first quarter of 2023 is €31.00/m². The maximum rent was concluded at a record level of €36.00/m² in the same period and thus continues to rise. The average rent also rose to €17.90/m².

The experts at Larbig & Mortag Immobilien expect total annual turnover on the Cologne office market to reach up to 275,000 m². Office landlords therefore anticipate a decline in results compared with 2022. The exact size will depend on whether the lease agreements are concluded in total and whether agreements in the range of 10,000 m² or more are realized.

Market figures at a glance for the first quarter