The Cologne Institute for the German Economy recently published a report on the situation of the office property market. Drastic price cuts are expected.
At the beginning of the year, according to WirtschaftsWoche, only two percent of real estate professionals expected prices to fall; by the end of the first quarter of 2020, it was probably 73 percent due to Corona. Now the Cologne Institute of German Economy (IW) published a report (Report 28/2020) on the situation on the office property market on June 18, putting an end to wild speculation.
Rents in prime locations will decrease
According to the report, the IW expects office rents to decline across Europe – even in prime locations. After office rents in Dublin rose by as much as 70 percent last year, in Berlin by 30 percent within two years and also in Milan alone in 2017 by 22 percent, prices are now apparently falling: In Dublin by 14.5 percent, in Berlin by 20 percent and in Milan by 23 percent. Other European cities are also hit hard, the report said.
Across Germany, the IW in the top office locations in Frankfurt am Main (16 percent), Berlin (20 percent), Düsseldorf (17 percent), Munich (15 percent) and Hamburg (12 percent) is expected to plunge sharply. Stuttgart is the least likely to be hit across Germany with a slump of “only” 9.5 percent; only office properties in Brussels are slightly better in Europe.
Purchase prices also react to the economic Corona low
Prof. Dr. Michael Voigtländer from IW explains in the report based on data from the 1990s that commercial real estate reacts enormously to economic developments, since the prices are often negotiated between tenants and landlords. Statistics in the report underline this – rents also fell sharply in 2008.
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But not only the rental prices will fall this year, the purchase prices are also expected to drop sharply: According to the IW, Frankfurt am Main will see a 33 percent drop in purchase prices, Berlin 35 percent, Düsseldorf 30 percent, Munich and Hamburg 22 and Stuttgart expect from 28 percent. According to the Handelsblatt, there are voices that expect low prices in the long term should work in the home office become established.
In the future, less office space will be needed than is available
Will the market recover? Voigtländer writes in the IW report that structural changes in the world of work are likely. ” […] employers will [das Home-Office] probably advocate to save costs. Digitization also offers more cost savings in terms of personnel deployment. “
The Handelsblatt reports on current Corenet survey results that underline this assumption: 69 percent of the property managers surveyed stated that their company will need less space in the future. The boss of the food manufacturer Mondelez, Dirk Van De Put, apparently confirms this with the words “We probably don’t need all the offices we currently have in the world”.
In order to do justice to the new world of work, according to Voigtländer, investors will have to offer office buildings in the future that integrate architectural creativity, collegial exchange and possibly also work in the home office into everyday work.
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