Germany’s office real estate market slipped deeper into crisis in the first quarter of 2021 according to German pfandbriefbank pbb in a downbeat assessment of the office investment market. Its pbbIX office market index has fallen to -1.51 points from -1.38 points in the previous quarter.
Pbb said that the office market economy has fallen to levels that are comparable with the dotcom bubble-burst. It has only been weaker during the financial crisis.
A significant slowdown in the office market began in the second quarter of 2020 owing to the COVID 19 pandemic. The renewed downward movement in the first quarter of 2021, although occurring at a much slower pace, is attributable to lower levels of investment in office properties accompanied by a decline in overall economic activity due to the pandemic. Weaker domestic demand, only partly offset by comparatively good demand from abroad, is the reason for the decline in activity, pbb said.
Weaker domestic demand reduces economic activity
Referring to figures from Real Capital Analytics, pbb said that inflows into office real estate fell from €7.3 billion in Q4 2020 to €2.1 billion in Q1 2021. The decline in overall economic activity was due to weaker domestic demand, which was only partially offset by comparatively good demand from abroad.
In contrast to the malaise in the office investment market, the occupier market was roughly on a par with the level that has prevailed since the start of 2020. There has been a higher vacancy rate over the last two quarters which has risen to about 4% of the portfolio across all BIG-7 markets. However, so far, “this increase has not had a direct impact on the development of prime rents,” pbb said in a statement.
If the pandemic is brought under control in the coming months, there may be an upturn in the economy which might stimulate the office market although this might be offset by structural changes depressing demand for space, pbb said.