Caution on German offices while economy ‘on slide’: PBB

The German office property market is “still on the slide” according to pbb Deutsche Pfandbriefbank’s pbbIX index report.

The report, which states that Germany’s economy is moving sideways, also observed that the country’s real gross domestic product remained unchanged during the first quarter of 2023 after Q3 2022’s 0.5% decrease.

There is “a distinctly wary approach” in both the market for office space and among investors despite the cautiously optimistic outlook for the remainder of the year and the pbbIX real estate index recorded its second consecutive quarterly fall, ending Q1 2023 significantly below zero, “below the boundary between growth and contraction”.

The office letting market weakened in Q1 and only 600,000 sq m was let among the Big Seven markets, roughly 30% less than in the previous year. This was mainly due to the weak economy and resultant corporate cost-cutting.

“Mobile working and desk sharing are also reducing demand for space and triggering adjustment processes, which in turn lead to less space being absorbed,” the firm stated.

Meanwhile office investment volume in the Big Seven markets fell to just under €1 billion in total, the lowest level since the third quarter of 2009.

“A changed lending and capital markets environment, the looming weaker market for office space, and still comparatively high purchase prices all pose challenges for many potential investors,” the report states.

Pricing for office properties is therefore difficult and large-volume transactions are rare.

But while individual markets are trending downwards, painting a uniform picture, prime rents are on an upward trajectory due to competition for ecologically sustainable space in prime locations.