The crisis in the office market is not an office crisis – Insight article by Michael Schöneich

The tense state of office markets is currently causing a great deal of uncertainty. Negative headlines indicating plummeting transactions, declining sales, and increasing vacancies have been prevalent. In the last quarter, major brokerage firms reported that occupancy rates have been lagging behind the boom years by up to thirty percent. At the same time, high-end rent prices in prime locations of top cities have continued to rise, as rates of €40 per square meter and higher are no longer a rarity. Duesseldorf is approaching a ten percent vacancy rate, according to the latest Jones Lang LaSalle (JLL) market report from the last quarter. New office construction is also continuing to decline. Once again, the number of completed office buildings fell below the previous year's figure, which was the lowest in the last ten years. In addition, building permits decreased by 16 percent. These latest figures from the Federal Statistical Office could indicate an oversaturated market. However, according to current findings this is not the case. There is no objective reason for the uncertainty – as the facts tell a different story. 

Remote work as a supplement 

A minimum "office presence requirement" on certain weekdays has become mandatory for banks as well as other companies. SAP, Amazon, and Deutsche Bank are among many companies who have recognised that teleconferencing cannot substitute in-person meetings to achieve efficient processes and a strong corporate culture. According to a global JLL survey from early 2024, a third of the surveyed companies have made working in the office partially mandatory. Another 27 percent are considering this regulation. Such a combination of office presence and remote working is currently the standard solution in many companies. 

Office presence is particularly crucial for small and medium-sized enterprises: 40 percent of the companies surveyed in Germany have categorically ruled out any changes to their office space, according to a 2023 Allensbach survey. In the same year, the ifo Institute found that only nine percent consider home office to be a reason to reduce office space. In fact, one in a hundred companies is looking to increase their space. Given that the home office rate of 25 percent of working hours has been constant for years, there has been no corresponding reduction in office space. 

The norm remains – a permanent office workspace 

What kind of office is needed? The main requirements in all studies include: Quiet, a customised environment, collaboration, and interaction. These criteria indicate that a reduction in office space is not desired by employees. On the contrary, individual offices instead of open-plan areas, as well as additional project rooms and meeting areas, point to a constant if not growing demand for space. It is worth noting that these criteria stem from employees and contradict rational calculations of cost efficiency. 

As the German Economic Institute (IW Cologne) determined in its "Office Work in Transition" report from December 2023, job satisfaction among office-based and hybrid workers is comparably high. The survey also found that 80 percent of office-based employees still have a designated desk. Desk-sharing and other practices that were intended to reduce office space are either slowly gaining acceptance or have already proven to be counterproductive.

Another aspect that has been previously overlooked is the connection between the quality of an office space and a company’s innovative strength. Innovation is frequently reduced to budget considerations and employee trainings. Yet, the criteria are broad based and should entail a close connection between property and innovation strategy. According to the latest Wide-Angle report by ISG, "Space to innovate", such synergy could generate double-digit GDP growth rates for the entire economy. Companies investing in innovative office spaces can not only increase their productivity but also benefit from a competitive advantage in the long term.

Conclusion: The office product meets needs

Two factors favour a positive development of the office market: Modern offices are a magnet to attract employees. They are designed and furnished so that employees willingly commute to remain up to date. Above all, they meet employee needs – a factor that was generally neglected in previous office planning. Moreover, the housing crisis has benefited the office: Home office requires corresponding space in one's own home. In recent years, the demand for residential space has been steadily growing and would need to increase further. However, in the short and medium term, both the market situation with numerous bankruptcies among residential property developers and the political determination against further land development hinder expanding residential construction. Consequently, the home office comparatively remains an inconvenient and inefficient alternative to a fully-equipped office workplace.

Read the article on Immobilen Aktuell.