German office demand to fall by 12% by 2030

We're beginning to get some concrete figures now on the extent to which working from home is impacting on the demand for office space in Germany. A new study by the Ifo Institute and property consultants Colliers throws up some useful findings.

The study - "Neue Arbeitswelt. New workplaces: the impact of working from home on the office property market" - combines data from the Ifo Institute's home office surveys of 9,000 companies with anonymised office lettings between 2013 and 2023 from the Colliers database. The data was provided to the Ifo Institute by Colliers free of charge for this project.

Of German companies offering their office employees 'working from home' arrangements, 84% said they would continue to do so in the future. This will lead to a decline in overall demand for office space in Germany's Big 7 cities of 12% by 2030, corresponding to 11.5 million sqm of office rental space.

According to Cem Ergüney, head of office lettings at Colliers, "There is currently a clear spread in supply on the German office market. Modern space in good locations that fulfils new work requirements is experiencing high demand from companies and corresponding rent increases. Space that does not cater for the new world of work is finding it difficult to market."

Simon Krause, author of the study at the Ifo Institute, added: "69% of companies in Germany now offer home office arrangements, and the figure is as high as 87% per cent among large companies. However, the coronavirus pandemic has also shown how valuable collaborative working in the office is. With the new structured hybrid working models, a form has become established that belongs to the future because it is highly accepted by employers and employees and enables the necessary productivity."

The average term of an office lease in Germany is around seven years, which explains why the home office effect is having a noticeably delayed impact on the market for office space - only around 15% of all leases are renewed each year. Overall, Colliers and the Ifo Institute assume in their analysis that 60% of all office properties in Germany are affected by the home office effect with companies in these properties reducing their space by an average of 20%.

Veteran industry insider Andreas Trumpp, Head of Market Intelligence & Foresight at Colliers in Germany, commented: "The office market in Germany is traditionally closely correlated with the Ifo Business Climate Index. It therefore made sense for us to combine our knowledge of the office market with the ifo Institute's survey and analysis data. Our joint study shows how fruitful this symbiosis is and how careful one has to be with generalising prophecies of doom about the end of office property. The prospective 12% reduction in office capacity is a stress test for landlords and investors, but the asset class will certainly overcome this challenge and successfully realign itself," he says .

Tide turning in favour of return to the office

The prospect of less overall demand for office space is certainly realistic. But there is some evidence that managers are succeeding in getting more of their employees to come back into the office more frequently than in the years 2021 and 2022.

Jean-Victor Alipour, who's conducted several studies on the subject for the Ifo Institute, believes that many managers believe that working from home has been organised too flexibly. "We are currently seeing a correction in terms of the rules for working from home," he says. "Many companies now want to make greater use of the advantages of being present again." Around seven out of ten bosses in large German companies assume that their employees will return to the office full-time within the next three years, he reports.

A recent survey by the Königsteiner Group and web portal Stellenanzeigen.de reports that, in 2023, around a third of those surveyed were already working from home less than in the previous year, while 29% also stated that they had received an instruction from their employer to come back to the office more.

Still, there are less job vacancies around now, and the power of employees to resist their employers's wishes has weakened over the last 18 months. Various surveys have indicated that the option of working from home is roughly equivalent to an 8% pay rise. A KPMG survey reported that 77% of German bosses could imagine promoting employees or paying them more if they came into the office more often.

This is where the issue of productivity is still very murky, with conflicting evidence about the degree of productivity in the office or working from home, and it seems still a function of the type of work being measured.

"It tends to be the case that communication is poorer and less feedback is given when people work exclusively from home," according to Ifo researcher Jean-Victor Alipour. However, there are hardly any differences between working from home and working in the office, and productivity is sometimes even slightly higher. "Above all, we see falling dismissal rates and higher employee satisfaction," says Alipour. Nevertheless, many managers remain sceptical about working from home. Many take the view that, when in doubt, decide in favour of the office.

Government funding two-pronged approach to cushioning rise in vacancies

Even outside the bigger cities, the trend to more working from home (or at least, not in the main office), has become well established. The federal government says it is addressing the issue, with a two-pronged approach to supporting the inevitable hybrid trend by providing subsidies. The "Young buys Old" policy is providing funding for young people to move make into smaller towns and rural areas and buying older and in some cases vacant, housing. This is being accompanied by further investment in the rail network to accompany the heavily-subsidised Deutschland-ticket to make communing to work more affordable.

The second policy is active funding to support more conversion from office building, or other commercial properties, into residential accommodation - the "Commercial to Residential" programme. The goal is to increase the supply of accommodation, and at the same time breathe new life into sometimes boring and monotonous city centres.