Top office real estate remains in demand

March 2022 Less office space due to home working? More space required for more shared office space? Peter Axmann, Head of Real Estate Clients at Hamburg Commercial Bank is convinced that it is still worth investing in office real estate. Three key trends that will dominate the market over the coming years.

Some experts predict that the need for space will decline in future because more and more people have developed a taste for working (part-time) from home, want to skip the morning traffic jam and will thus spend less time in the office. In contrast, other real estate experts certainly recognize the tendency towards more mobile work, yet also see an increasing need for more shared space within the company. The bottom line, according to this view, is that demand should remain more or less the same. And there are even people who are expecting an upturn in the economy and as a result are seeing an increase in the demand for office space. As a commercial real estate financier, Hamburg Commercial Bank regularly analyzes real estate markets and has observed an increasing differentiation in the demand for office real estate. Following the pandemic-related near-standstill in the markets, the demand for new and modern space in good locations has skyrocketed since. With core properties in the seven German A-cities Berlin, Hamburg, Düsseldorf, Cologne, Frankfurt am Main, Stuttgart and Munich, we are even seeing a slight increase in rents and prices. Top locations are in demand, despite the fact that the space requirement per tenant is dropping in some places. Because larger companies are increasingly looking at where they can save space. So, for example, not everyone gets their own desk anymore. If you come into the office, you work where there’s space. For investors and banks, it spreads the risk if a property is rented out to four or five companies rather than two or three.

The “war for talent” to acquire the best new recruits is boosting demand. These days, employers offering appealing offices, an attractive “socializing space” and a prime inner-city location score the most points with applicants. In contrast, it will get harder for older buildings in less favorable locations.

For companies renting out properties as well as banks and investors, sustainability issues play an increasingly important role. Meeting the required environmental standards often involves expensive modernization and repositioning. For older properties, this can result in a decline in rents and prices over the medium term of up to 25 percent, as well as structural vacancies.

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