Office Real Estate: Flexible and Future-Ready Spaces

The concept of office space has evolved considerably over the years. Once dominated by partitioned offices or open-plan spaces, the market now includes more flexible and hybrid solutions. Shared offices that promote collaboration now sit alongside private spaces, which allow employees to isolate themselves for tasks requiring concentration and confidentiality. Other configurations, such as open-plan offices or multi-purpose spaces, allow the working environment to be adapted to the needs of employees.

In addition, the rise of non-territorial work is changing office occupancy. Employees no longer have a fixed workstation, which optimises the use of space. This change is due in particular to the rise of teleworking and companies’ desire to reduce their property costs.

The office market is diverse, ranging from modern buildings in city centres to more traditional buildings on the outskirts or in medium-sized towns. There is also a trend towards renovating and converting old buildings to meet new environmental standards and occupant expectations.

Changing occupancy patterns has also altered the relationship between owners and users. Whereas companies used to often own their offices, they now prefer the flexibility offered by renting. This change has increased the attractiveness of offices as investment assets. However, the market slowed down in 2023 due to the economic situation and rising financing costs.

In 2023, investment in office property fell by 81% to just €5.3 billion, according to JLL. The share of offices in total real estate transactions in Germany fell to 17%, behind logistics, residential and retail. This decline can be explained by several factors: the economic slowdown, rising financing costs and higher returns on alternative investments. In addition, the gap between buyers’ and sellers’ expectations is complicating transactions, although this gap is gradually narrowing.

The office rental market is also showing signs of weakness. In the first quarter of 2024, rental demand fell by 20% compared with the previous year, with a rental volume of 2.1 million square metres in Germany’s five largest cities.

There are notable disparities between the major cities. Berlin remains the most dynamic city in terms of rentals, despite a 21% decline. Munich, on the other hand, recorded a more pronounced decline of 38%. Hamburg is doing well thanks to several large transactions, limiting the decline to 12% compared to the long-term average.

At the same time, vacancy rates are rising. Around 6 million square metres of office space is immediately available, bringing the average vacancy rate to 6.3%. Berlin has the lowest rate (4.1%), while Frankfurt (9.5%) and Düsseldorf (9.4%) have higher levels. In contrast, prime office rents continue to rise, although average rents are showing contrasting trends across cities.

The future of the office market depends on several factors, including digitalisation, new working models and economic developments. In Germany, growth is forecast at just 0.1% for 2024, which will have a direct impact on demand for office property. The rise of remote working is prompting companies to rethink their space requirements, favouring flexible offices and a reduction in the amount of space occupied.

The growing interest in flexible office solutions confirms this trend. These spaces offer companies an alternative to traditional leases, with more flexible services and rental terms. Although more expensive per unit (10-15% more than traditional offices), these spaces meet the expectations of companies and employees in terms of flexibility and collaboration.

Location remains a determining factor in the attractiveness of an office, but other criteria are gaining importance, particularly sustainability. Green Building-certified buildings represent a growing share of the market, reaching 46% of investments in 2022. This trend is linked to ESG requirements and increasingly stringent environmental regulations, such as the carbon tax applied to commercial buildings in Germany since 2023.

Certified offices enjoy a competitive advantage with rents that are on average 6% higher and vacancy rates that are 2% lower than non-certified buildings. By reducing operating costs and improving the brand image of occupants, these buildings appeal to both investors and tenants.

The office real estate market is undergoing a major transformation, influenced by new working practices, environmental requirements and economic fluctuations. Faced with these challenges, players in the sector must innovate to offer spaces that are adapted to current needs while ensuring the sustainability of their investments. Optimising the flexibility, sustainability and attractiveness of offices will be essential to anticipate market developments and meet the expectations of businesses and investors.

Our expertise in office real estate

• Asset management: We help you secure and optimise the management of your office premises.
• (Re)negotiation of commercial leases: In light of changing needs and uses in terms of office space, we assist you in (re)negotiating your lease terms.
• Sustainability and environmental certifications: ESG and energy transition have become major criteria for asset attractiveness. We support our clients in adapting and bringing their office premises into compliance with new environmental requirements, with a view to securing and enhancing their value.
• Asset investment and valuation: We assist you in structuring and implementing (legally and operationally) your office acquisition or conversion projects. In a rapidly changing market, our expertise enables companies and investors to anticipate developments and transform their offices into real drivers of performance and attractiveness.