Office property market in focus

Berlin, 14 September 2023

vdp Immobilienforum 2023 provides expert information on trends in the office property market and New Work

The Immobilienforum of the Association of German Pfandbrief Banks (vdp) on September 11th 2023 in Berlin provided information on trends in the market for office properties and gave insights into the concept of "New Work". Almost 70 guests attended the event in Berlin. About 160 participants took advantage of the digital access.

Jens Tolckmitt,
vdp Chief Executive, outlined the general conditions for the further development of the office property market in his welcoming address. He said that the uncertain macroeconomic environment in particular was currently having a negative impact. The German economy is suffering, among other things, from higher energy prices, high taxes, an increasing shortage of skilled workers and crushing bureaucracy. In this environment, the office property market is showing signs of strain. Above all, the sharp rise in interest rates has led to unavoidable price adjustments. Planning uncertainty was also caused by the often unsuccessful political agenda for more sustainability and the question of future trends in home offices. Tolckmitt cited the development of office rents, which are rising dynamically and indicate that the office real estate market could gradually pick up again, as a glimmer of hope. However, he said that this would require a significant reduction in the uncertainties surrounding future economic developments.

In her outlook for the office property market,
Hildegard Höhlich
from the vdp gave a detailed overview of the user and investment market for office properties. Companies continue to put their space requirements and the corresponding working environment concepts to the test. Future space requirements are still unresolved in many companies. Against the background of the uncertain economic development, a further increase in vacancies is to be expected. Uncertainties exist on the investment market with regard to the future wishes of users and their space requirements. Users and investors are focusing on ESG-compliant properties in good and very good locations. These high location and quality requirements are leading to an increasing spread in rental and purchase price development. Overall, a further decline in office property prices is expected in the coming months.

An insight into the new world of work ("New Work") was provided by
Deborah Reicherts,
Head of New York and Workplace Transformation at LBBW Corporate Real Estate Management. She was convinced that offices would continue to be justified, but that new concepts would be necessary to attract talent, lure employees back into offices and create a platform for communication. In her view, the office of the future will be half the size, but twice as cool! She used a number of examples to show how office environments can be developed into a place of encounter and how space efficiency can be increased at the same time.

Criticism of extent of regulation

The ensuing panel discussion centered on how the space and ESG transformation in office real estate can succeed and be financed. The guests

Maria Teresa Dreo-Tempsch, member of the Board of Management of Berlin Hyp,

Sven Carstensen, Member of the Board of Bulwiengesa,

Frank Müller-Rosentritt, Member of the Bundestag and FDP spokesman on banks in the Finance Committee,

Jochen Schenk, Chairman of the Board of Real I.S. and Vice President of the German Property Federation (ZIA),

discussed with the moderator

Michael Fabricius, real estate editor of the WELT.

The panelists agreed that the current ESG regulation is not suitable for achieving the German government's climate goals of ensuring climate neutrality by 2045. The regulatory focus is often far too much on energy-optimized new buildings, while the major lever is the energy optimization of existing buildings. In the existing and also in new buildings, the transformation would not succeed without an expansion of the provision of "green" energy and also not overnight. Speaking of transformation, there should be more focus on promoting the transformation of previously "brown" properties into "green" properties. In addition, there are generally too many inconsistencies within the various ESG regulations, which, on top of that, usually do not result in a CO2 reduction. For example, the EU taxonomy leads to a misallocation of capital without achieving success in terms of energy. In general, ESG regulation is too overambitious and there is a major conflict between ESG targets and their affordability. For example, there are significant differences between the top 7 cities and rural areas, where more than 70% of office space is located. Energy optimization measures that could possibly be implemented in the top 7 cities due to the high rents achievable there are not feasible outside the major cities, for example, with rents of 8 euros.