German office occupancy tumbles to 40%

German office occupancy has tumbled to just 40%, down from 61% before the pandemic, according to the latest research by workplace consultant Combine Consulting.

Combine Consulting analysed occupancy in twelve corporations from five industries with a total of 17,000 workplaces in Germany. The occupancy rate between January and April 2023 was just 25% of what it was at the peak as more and more people work from home. By comparison, Scandinavians (27%), Americans (35%), French (41%) and Southern Europeans (47%) come into the office more frequently, according to Berlin-based PropTech Basking.

Basking looked at 121 customer sites worldwide, 40% of which are in Europe and the US. The results of the analysis were published at an event organized by CREM association Corenet Global in May. They found that 43% of German employees came to the office only once a week, another 45% on two or three days. Only 11% visit the office workplace on four or more days of the week.

Big companies to shrink their global office portfolios

Subsequently, many companies are scaling back on the office space they need. According to a survey last month by Knight Frank, many of the largest corporations plan to reduce the amount of office space they occupy over the next three years, underlining the changes set to reshape the commercial real estate market.

Knight Frank polled 350 real estate leaders at international firms and found that half of the largest companies surveyed - those with more than 50,000 staff - expect to shrink their global portfolios, with most expecting to cut them by between 10% and 20%. However, smaller companies with fewer than 10,000 employees said they expected to grow, with 55% planning on expanding their office needs.

 ‘Now that we are in a truly post-pandemic world, corporate decision-makers are “removing the blinkers” and making clear decisions around their future corporate real estate strategy based on a broader array of business issues than just the pandemic,’ said Lee Elliott, Knight Frank’s global head of occupier research.

Working from home has certainly intensified since the pandemic. According to Combine Consulting, people typically work from home on Mondays and Fridays. In 2022, the consultant's measurements between Monday and the three middle days of the week did not yet show a serious difference. Basking's data shows that 82% of office visits occur during Tuesday through Thursday. On Monday (17%) and Friday (10%), visits fall significantly. Interestingly, in France, only 17% of all office visits occur on Wednesday because there are fewer school hours on that day and working parents then prefer to work from home.

‘The new forms of work require new workspaces’

‘The new forms of work require new workspaces,’ said Hendrik Grempe, managing director of Combine Consulting. ‘The simple calculation that 50% presence equals 50% less space is therefore not correct. Corona represents a clear break for all of us in the way and where we work. Whereas in pre-pandemic times an average of around 60% of employees were present in the office, at the height of the pandemic, the figure dropped to below 20% in some cases. Home office became a reality for many, demonstrating that office work can often be done well as a hybrid, so currently office workspace utilization rates rarely exceed 50%, even on busy days.’

However, a study on working from home by the Department of Real Estate Management and Construction Business Administration at Darmstadt Technical University throws up different results: According to the study, all days of the week are broadly equally popular for coming into the office. On Tuesdays, Wednesdays and Thursdays, the average office worker surveyed has a 50% probability of working in the office. On Monday, the probability is scarcely lower at 45%. Only Friday, it is slightly less popular (36%).

Nonetheless, trying to determine just how much office space a company needs is a complex business, according to Grempe: ‘Determining the actual potential for saving office space is a complex process that requires deeper insights into the actual working environment of employees. So you can't just cut space one-to-one. Rather, the spaces have to be adapted to hybrid working. The modern working world is characterized by video calls and telephone conferences. To ensure that these can be carried out undisturbed, offices need to provide smaller meeting rooms where workers can withdraw and make phone calls or hold video conferences without ambient noise.’

As such, the need for offices won’t dissipate - working purely from home isn’t likely to take off any time soon. As Fabian von Köppen, CEO of Hamburg developer Garbe puts it: ‘I continue to believe in the office. You have to come together to work creatively.’ However, he stresses the need of offices to offer added value to employees.

Office downturn to continue until 2024

Still, the downturn in Germany's top five office markets - Berlin, Düsseldorf, Frankfurt, Hamburg and Munich - is likely to continue until the end of 2023. Vacancy rates and prime yields are expected to rise, as will prime rents, although property values are still expected to fall this year, according to a recent study by gif/CRES.

The outlook for 2024 is more positive: stable prime rents and yields suggest that property values will also stabilize. On average, yield increases of 50 basis points are forecast in all five markets. This would put prime yields at between 3.8% and 4% at the end of 2023. Berlin and Munich are the frontrunners, and this will not change in 2024, the study says.

In Berlin, a noticeable increase in the vacancy rate is expected, taking it to around 5% by the end of this year, according to the study. The forecast for Frankfurt has deteriorated significantly and it is expected to hit 9% by the year-end. Vacancy rates in the other three markets - Düsseldorf, Munich, Hamburg - will increase less sharply, by between 0.20% and 0.55%.