The pbbIX declined again in the third quarter of 2023, falling to -1.61, the lowest value since Q2 2009. All three components had a negative impact on the index in the summer months: economic output contracted, the demand for office space remained low in an environment of economic weakness, and a pronounced slump prevailed on the investment markets.
The overall economy is currently stagnating. Following on from the sideways movement in the first quarter and the slight increase of 0.1 % in the second quarter, third-quarter GDP contracted slightly by 0.1 %. This had a continued impact on the demand for office space, with overall levels in the first three quarters of this year remaining well below those of recent years. It is reasonable to assume that we have not yet seen the full extent of the downward trend. Although business surveys point to a tentative economic upturn, this will not be enough to revive the demand for office space. Investor reticence will also persist this quarter and put pressure on initial yields, even if capital markets rates remain unchanged.
As is the case for the German economy as a whole, the big 7 markets for office space are also suffering from sluggish demand. Despite rising slightly in the third quarter compared to the very weak previous quarter, take-up remained low at 630,000 sqm. All in all, only 1.8 million sqm office space was let in the first three quarters of the current year, compared with 2.8 million sqm in the same period of the previous year.
The recessionary development on the office investment markets persisted in the third quarter. Most market participants believe that the price adjustment process is not over yet, Depending on the source consulted, only around €800 million to €1.1 billion worth of office property was purchased in the big 7 markets. In particular, this reflected a lack of large-volume transactions. All in all, transaction volumes across the first nine months of the current year were low, at only €3.1 billion. To put this into perspective, transactions volumes were around €14 billion in the first three quarters of each of the last three years. Such a low level of inflows as in the current year was last seen in 2008 and 2009.
The individual big 7 markets continued to trend downwards as well. Vacancies continue to rise but remain largely below 5%. Net initial yields are rising across the cities analysed.
The complete report for the third quarter of 2023 is available at pbbIX.com.