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While German office markets grapple with stagnant demand and rental pressures, operating costs have surged dramatically, with prime market expenses nearly doubling over five years. This creates what industry experts call a "second rent" that places massive new burdens on corporate tenants and institutional property owners.
According to a joint study by bulwiengesa and BAUAKADEMIE, operating costs now represent 21% of total occupancy expenses in prime locations—a six percentage point increase since 2016. This surge occurs as office markets face their most challenging conditions in decades, with demand remaining well below pre-coronavirus levels.
"The development of prime rents has decoupled from the usual market mechanisms," explains Alexander Fieback, Head of Office and Commercial Real Estate at bulwiengesa AG. "The trend towards 'flight to quality, flexibility and location' is leading to new highs in basic rents. The development in operating and maintenance costs is also causing a rise in what is known as the 'second rent' for everyone."
The timing proves particularly problematic for institutional investors. While headline rents attract market attention, operating cost explosions create additional burden precisely when tenant demand remains fragile and economic signals point toward continued stagnation through 2026.
Cost drivers reshaping building economics
The study identifies three primary drivers behind the surge. Energy prices, particularly heating costs from the Ukraine war, represent the most significant shock. Labor-intensive facility services have experienced inflation-driven wage spirals, while insurance premiums have increased significantly across all property types.
Facility services account for 48% of operating expenses, supply and disposal represent 30%, and other costs comprise 22%. Since 2023, increased labor costs for cleaning and maintenance have emerged as a new driver, reflecting broader inflationary pressures.
Andreas Kühne, managing director of BAUAKADEMIE, emphasizes the mixed nature of these pressures. "Around 60 per cent of the costs are fixed costs, but 40 per cent can be influenced by intelligent optimisation," he notes. The analysis reveals 22% of operating costs can be optimized through coordinated landlord-operator action, while 18% remains under tenant control.
Building certifications create a competitive paradox. With 66% of A-city office space completed in 2025 featuring environmental certifications, these credentials have become essential for tenant attraction. However, certified buildings often generate higher operating costs despite efficiency credentials.
"Certified buildings often have higher operating costs—only heating costs are around 20 per cent lower," Kühne explains. Higher technology levels increase maintenance costs and electricity consumption even as heating expenses decline. Certifications represent "a decisive competitive advantage in attracting tenants" but add operational expense without anticipated savings.
Strategic implications for institutional portfolios
The operating cost surge occurs against broader office market challenges. Economic signals suggest continued stagnation into 2026, while space demand remains well below pre-pandemic levels. The combination of elevated operating costs with weak tenant demand pressures both rental income and total occupancy economics.
For institutional portfolios, implications extend beyond individual property performance. The "second rent" burden affects tenant retention and attraction, particularly for companies managing cost pressures amid economic uncertainty. Corporate real estate strategies increasingly factor total occupancy costs rather than headline rents alone.
The study reveals some institutional investors "are already taking active countermeasures and even achieving cost reductions," while others experience costs rising above inflation trends. This performance divergence suggests successful cost management requires specialized expertise and active intervention rather than passive ownership models.
Market transformation extends beyond cyclical factors to structural changes in office property valuation and tenant expectations. New work patterns, ESG requirements, and technology integration are creating ongoing pressure for building improvements that typically increase operational complexity and costs.
REFIRE: The operating cost crisis has become a silent destroyer of office investment returns that institutional portfolio managers can no longer afford to ignore. While everyone watches headline rents, prime market operating expenses have nearly doubled in the background, fundamentally altering the economics of office ownership. The traditional approach of focusing purely on rental income misses half the story now that operating costs represent such a substantial portion of tenant burden.
Institutional investors who master the 22% of expenses they can control through better landlord-operator coordination will gain meaningful competitive advantage over those who remain passive. The certification dilemma presents an unavoidable reality: ESG compliance has become essential for tenant attraction despite adding operational costs rather than reducing them. The market has shifted toward rewarding active asset management over passive ownership, and properties that lack professional cost optimization will steadily lose ground as this "second rent" burden continues expanding across German office markets.