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No crisis in the German office sector, the risk is the economy

Phillip Ellebracht, Group Head of Sales, Corestate Capital Group

There is no crisis in the German office sector, experts agreed at Real Asset Media’s Germany Investment Briefing, which was held online recently. Last year, despite the pandemic and the lockdown, the sector attracted investment volumes second only to residential.

“The office is definitely not dead,” said Thomas Veith, partner, real estate, PricewaterhouseCoopers. “Vacancy rates are lower in Germany than in other countries and we’ve had strong rent increases, so if rents stabilise now at these high levels it won’t be a disaster.”

The consensus seems to be that people are keen to go back to the office, but not for five days a week, so employers must be flexible and provide solutions.

“If the economy cools down, the demand for offices will decline but it’s definitely premature to talk about the death of the office,” said Holger Schmalfuß, senior originator, international investors, Berlin Hyp. “During the pandemic remote working has been tried and tested, so there’s a shift in what people need to do in the office, which will become more of a collaboration space.”

New concepts will emerge, whether it is bigger spaces, smaller individual offices or more co-working.

“The office is recognised as a key component in promoting creativity in an organisation,” said Philipp Ellebracht, group head of sales, Corestate Capital Group. “Formats will be adjusted, but the demand for amenities is sure to grow.”

A lot of work will have to be done on renovating and upgrading existing buildings.

“Germany has a lot of ‘60s and ‘70s buildings that need to be brought up to scratch and be ESG-compliant, and that’s an opportunity in itself,” said Veith.

The ESG focus will drive this, said Schmalfuß: “The transformation of existing assets will be a big trend. Germany will follow the example of the Netherlands, where low-quality buildings cannot be let.”

Experts’ findings were in line with PwC’s seven scenarios for the office of the future:

1) flexible working will account for a much larger proportion of working hours across all industries than before the pandemic. 2) Companies will need 20% to 30% less office space in the future. 3) The office is becoming a “business club”, a collaborative spaces for working. 4) In German private homes, the demand for space and rooms for home office work will increase, so larger apartments will be in demand. 5) Employees will put up with longer commutes to work if they have to make them less frequently. 6) Employees expect support for flexible working, which means that  employers must provide appropriate training programs, regulations, and the necessary office and IT infrastructure. 7) ESG criteria will play a bigger role in offices in many ways, from using sustainable materials to promoting the well-being of employees.