German office property market trends even deeper into crisis

  • pbbIX office property index falls for the third time in a row to now -1.51 points for Q1 2021
  • Office market similarly weak as after the bursting of the dotcom bubble

The German office property market slipped deeper into crisis in Q1 2021. The pbbIX office market index pbbIX fell further to -1.51 points from -1.38 points in the previous quarter. The office market economy is thus on a comparably low level as it was after the bursting of the dotcom bubble; it was only weaker during the financial crisis. The significant slowdown in the wake of the COVID 19 pandemic had begun in the 2nd quarter of 2020.

The main reason for the renewed downward movement in Q1 2021, albeit at a much slower pace, was lower investments in office properties accompanied by a pandemic-related decline in overall economic activity. According to Real Capital Analytics, 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.

By contrast, less negative effects came from the space market, where letting performance in the period under review was roughly on a par with the level prevailing since the start of 2020. The higher vacancy rate seen for the past two quarters continued to rise slightly to a level of around 4% of the portfolio as a weighted average across all BIG-7 markets. So far, this increase has not had a direct impact on the development of prime rents.

If the pandemic can be overcome in the coming months, there may be an upturn in the economy over the course of the year, which can stimulate the office market. This may be offset by structural changes depressing demand for space.   

The situation on the regional markets is also difficult, but does not affect all submarkets to the same extent. Berlin continues to be comparatively stable; here, the pbbIX fell from -0.85 to -0.94 points, while all other submarkets are much deeper in the crisis.

The full Q1 2021 report is available here