ppbIX: Slight upward trend continues

• The pbbIX rose slightly again in the second quarter of 2025, indicating a tentative recovery in the office market
• Demand for office space across all quality categories and locations remains below average against the backdrop of economic weakness
• Prime rents in prime locations for top-quality properties are rising or at least remaining stable
• Business expectations in the construction industry are currently at their highest since the beginning of 2022

Garching, 21/08/2025 – The German economy is still stuck in neutral. After the beginning of 2025 was characterised by modest economic growth due to pull-forward effects in connection with the US tariff plans, the economic environment deteriorated in the second quarter.

According to current information from several credit and research institutions, only slight GDP growth of +0.2% is expected for 2025 as a whole. Looking ahead to the second half of the year, scepticism about a sustained economic recovery has increased. The general uncertainty is also causing consumer spending to remain subdued. While private and government consumption expenditure rose, investment in equipment and construction was lower than in the previous quarter. However, the construction industry is hoping for a recovery in the medium term thanks to the infrastructure package.

Demand for office space remained below average against the backdrop of economic weakness and structural changes in office use. Nevertheless, prime rents for top properties in prime locations rose or at least remained stable.

On the investment market, turnover also declined further compared with the weak previous quarter and remained at its lowest level since 2009 in the first half of the year. Despite the ECB halving its deposit rate to 2.0% since June 2024, uncertainty about the economic and interest rate outlook persists, meaning that caution on the office markets is likely to continue. Given the economic and global uncertainties, the economic stimulus provided so far is not sufficient to boost demand for office space.

Space take-up in the BIG 7 markets fell by 8% in the second quarter (670,000 m²) compared with the previous quarter, but at 1.4 million m² in the first half of 2025 as a whole, it was 10% higher than in the previous year. However, this represents a decline of 13% compared with the 10-year average. The half-year performance varied greatly from city to city. In Berlin, for example, letting activity fell by 19%, while Frankfurt am Main recorded an increase of 86%.

Vacancy rates continued to rise on average across all markets. After 7.4% in the first quarter of 2025, 7.7% of office space was vacant in the second quarter. Based on the individual markets with vacancy rates ranged from 4.6% in Cologne to 10.9% in Düsseldorf. 

In terms of new construction activity, approximately 540,000 m² of office space was completed in the first half of 2025, around 40% less than in the same period last year. The decline compared to the 10-year average was 14%. In the short term, the construction and real estate crisis means that no increase in the construction pipeline is expected.

In the second quarter of 2025, the average prime rent in the BIG 7 markets was just under 7% higher than a year earlier, with Munich and Frankfurt recording the highest growth rates at 12% and 11% respectively. Competition for prime space will continue to drive rental growth in the top segment in the second half of the year. 

The full report for the second quarter of 2025 is available here and, as always, can be downloaded at pbbIX.com.