The uncertainties of the first half of the year are depressing office space turnover in the class A cities. The spread of the home office and a possible loss of jobs with possibly lower space requirements in the long term are unsettling many players. However, current signals already point to a certain recovery in market conditions.

Developments on the office market are very different for the various stakeholders. Reservations on the part of the financing banks for new construction projects, the media discussion about the success of home offices and the resulting lower office space requirements or the first critical weeks for providers of flexible workspace have initially influenced the mood. For example, the German Hypo Real Estate Sentiment Index recorded a low of 69.7 in July 2020 (from 140.3 in March 2020) and has recovered only minimally since then.

A look at office space turnover, i.e. the rentals and new owner-occupancy of office space, in the seven class A cities shows that the trend is still positive: Due to the economic uncertainties, companies were much more cautious in the first half of the year. Rental decisions are being put aside for the time being or postponed significantly into the future to wait and see how the pandemic progresses and its effects on the economy in the second half of the year. As a result, the sales result in the first half of 2020, with 1.13 million sqm of office space taken up, was only 66 % of the previous year's level, with the second quarter of 2020, for example in Frankfurt am Main, showing a particularly strong decline.

However, current signals from the summer of 2020 already point to a certain recovery of these market conditions: the first major lettings are already emerging again, such as the leasing of around 10,000 sqm of rental space by the tax consultancy WTS Group in the iCampus-Rhenania project development in Munich's Werksviertel, the leasing of around 16,000 sqm MFG to Deka in the FOUR-T1 high-rise building currently under construction in Frankfurt/Main, as well as other major lettings in Berlin and Hamburg.

The economic conditions in the coming months and years are decisive - it depends on them whether the real, rather positive signals from the local markets will actually lead to a rather expansive office property market again in the medium term. Extensive fiscal measures will at least partially compensate for the negative economic consequences.

The volume of work affected by the lockdown will be partly compensated for by reducing employment (i.e. by not hiring, expiring fixed-term contracts, but also by layoffs) and partly by various measures to reduce the average working hours of the remaining employees, such as short-time work or the reduction of credit balances in flexitime accounts.

Even if many uncertainties have not yet been overcome, it can be assumed that only a small proportion will be compensated by job cuts and that companies will try to keep their employees as far as possible. In contrast, the proportion of self-employed people affected by the crisis and the decline in mini-jobs are likely to be disproportionately high, and their impact on office space requirements is likely to be limited. The majority of office workers will continue to be employed after the crisis - the instrument of short-time work is considered an effective means of preventing job losses, particularly in the case of salaried employees.

We do not currently expect a fundamental decline in demand in the office sector due to declining employment. Nevertheless, the crisis is leaving its mark, which can already be seen in sharply declining sales figures.

Contact person: Oliver Rohr, project manager office at bulwiengesa, rohr [at] bulwiengesa.de