Office real estate: ppbIX posts another decline


​​​​​​​The pbbIX declined once again in the fourth quarter of 2023, falling to -1.96, the lowest value since the first quarter of 2009. 2023 was defined by a contracting economy, a consequent slowdown in demand for office space and plummeting investment market revenues. Despite all of this, the pause in interest rate movements gave rise to the first signs of stabilisation, albeit at a low level. In the fourth quarter, office space take-up and cash inflows saw slight quarter-on-quarter growth.

After stagnating in the first nine months of the year, the overall economy shrank by 0.3% in the fourth quarter. GDP ended the year with a similar decline. Unsurprisingly, latent uncertainty gripped the market in 2023, and demand for office space fell far below the levels seen in recent years. Currently, the amount of vacant office space is therefore significantly higher than a year ago. Despite the interest rate pause, investment markets remained under immense pressure in the fourth quarter – reflected in an ongoing and marked reluctance amongst buyers. Following the trend seen in previous quarters, inflows on the investment market were very low, pushing up initial yields and leading to falling capital values.

The seven big office space markets in Germany have been suffering from weak demand since the end of 2022. Letting volumes remained low at 740,000 sqm, despite rising slightly in the fourth quarter compared with the rather weak previous quarters. Only 2.5 million sqm found new tenants in 2023, compared with 3.5 million sqm in the previous year, marking the lowest take-up volume since the crisis year 2009 and a year-on-year decline of 28%. As the economy recovers, office space take-up is expected to increase over the course of 2024. New construction activity was also rather slow; at 1.3 million sqm, it fell short of the previous year’s figure by 26%. Nevertheless, the vacancy rate saw a significant weighted average increase of 5.8% across all the big 7 markets (+90 basis points compared with the previous twelve months).

While the very low inflows seen over recent quarters in the big 7 office investment markets picked up a little in the fourth quarter of 2023, a mere €4.1 billion was invested during the year as a whole, compared with €17.1 billion in the previous year. To put this into perspective, more than €20 billion per annum was invested in the years 2017 to 2021. Mirroring the development of capital market yields, net initial yields have been following a steep upward trajectory since the second quarter of 2022. Yield momentum slowed during the fourth quarter of 2023 (+17 basis points), after increasing by 34 basis points in the previous quarter.

We expect a slow recovery for investment markets in 2024: the peak in the interest rate cycle has passed, market participants are starting to see eye to eye in terms of pricing, inflation is easing, and visibility and planning security is growing.

All the big 7 markets have also been trending downwards. However, while space take-up was lower overall, some markets saw a slight correction in the final quarter of the year. Net initial yields are rising across the cities analysed.

The complete report for the fourth quarter of 2023 is available at