Joachim Gripp heads the office provider Design Offices. When it comes to office rentals, the rule is increasingly “If it’s okay, it’s okay!”, he says in an interview. Employees want to know “why they should go to the office.”
Apparently the market for commercial real estate is in crisis. At Design Offices they offer exactly such spaces, just with very flexible terms – sometimes as little as one day. How are you doing with this model in the market?
Joachim Gripp: We don’t have to kid ourselves: it’s currently a slow business with slow decision-making processes. Many companies are unsure how much office space they need. At the same time, we ourselves are involved in term transformation: we rent for long periods and rent for short periods. This is a problem when our rents are indexed at the same time – i.e. rising with inflation. But it’s not something that’s impossible either. In these times we just have to impress even more with a good product.
Design Offices rents out classic offices, coworking spaces and conference rooms. This puts you in tough competition – for example with WeWork or Regus. What are you doing differently?
I like to be compared, but not with WeWork. We have a significantly higher service level and also take Germany much more seriously: We are active nationwide in 15 cities, WeWork only in five. Basically, I would classify us more as a hospitality company and less as a real estate company. That certainly sets us apart from the others. Our biggest growth driver is meetings of all sizes, with which we will already make over 30 million euros in sales this year. We’re very proud of that because it’s hard to top even in the hotel industry. Our focus is on team spaces, and our strength is the service level. It is our superpower that we have so many employees – almost 500 in 50 houses. Our customers get immediate help when they have a problem. That’s a huge difference to the competition.
500 employees at 50 locations. That must be enormous personnel costs…
Yes, of course that’s what my investors always say – and it certainly wouldn’t be justifiable for pure office leasing. However, due to our focus on team spaces and the associated meeting business, we need this level of service. The number of staff pays for itself through meeting sales and raises the office experience to a level that is unparalleled on the market – and of course also justifies our comparatively high prices.
Customers used to want three things above all else: location, location, location. How is it today?
Same thing, only much stronger. Location is the absolute gold standard, and it shows in the data. The vacancy rate for office space has doubled in the past two years. And yet we have increases in prime rents of almost 20 percent. This shows the dynamics of segmentation. When it comes to office rentals, the motto “If it’s okay, it’s okay!” is increasingly applying. Since Corona at the latest, people have wanted to see a purpose behind why they go to the office. Otherwise, you can do the same work from home. Companies have to offer their employees something – and that certainly doesn’t include a linoleum bunker on the outskirts of town. It’s about creative, innovative teamwork and corporate culture. In addition to suitable rooms and a top level of service, this also includes activation events such as lectures, an after-work beer and opportunities to meet in a stimulating environment. In my opinion, this trend is irreversible and will mean that central locations in major cities will be more in demand than ever.
Does this apply equally to all large cities?
No. There are already signs of oversupply in Frankfurt because people there had hoped for more from Brexit. The market has also cooled down somewhat in Hamburg.
Where will things be particularly tight?
Definitely Munich, then Düsseldorf and Cologne. In the so-called B cities, things are likely to be tight in Leipzig and Hanover.
And what about Berlin?
Yes, Berlin is of course always very hot. The market there is also very dynamic. In Berlin we are currently seeing a huge subletting offer. For example, a well-known online fashion retailer has huge excess capacity there on the Spree and is currently subletting on a large scale. You can have almost the entire Mediaspree district for a few years. This will also be noticeable on the market.
Could you move into the space yourself and rent it out?
We want to increase density in Berlin. But more in the places where we are already: at the main station, at Potsdamer Platz, Unter den Linden, and preferably at Alexanderplatz. I find the area around the Mediaspree district in Friedrichshain a bit soulless. And from an investment perspective, it doesn’t make any sense: I don’t get any construction subsidies and if things go badly, I’ll have to tear everything out again in three years. That would be interesting if one could potentially take over the rental agreement.
In Berlin, many startups are based in coworking spaces. How important is this market for you?
We don’t say no to anyone if they pay. But we clearly align our product with larger companies – medium-sized companies, corporations. This is our target group. However, this environment can be interesting for coworkers if they are close to these companies and want to come into contact with them. For us, classic coworking is becoming more and more of a fringe business. Of course, in Berlin, for example, we have many of the typical B2C start-ups as customers, especially the young delivery services. In the meantime, there is new competition for us with the sublettings on the Spree discussed. A lot of start-ups have moved in there because they can admittedly rent cheaper there than with us. I can understand that too, a start-up only plans for three years anyway.
Which cities are still interesting for you?
Today I would no longer invest in cities with fewer than 300,000 inhabitants. We’re fighting for break-even in Heidelberg, but also because we’re quite big there and not right in the middle. In Karlsruhe, which has a population of just over 300,000, it’s really fun. Of course, a lot is still possible in the league in Germany.
What do you think of the Corona theory that flex offices in the countryside are the future – that is, that companies send their employees to the nearest coworking space to save them the trip to the distant company headquarters?
Not much. Of course this will happen occasionally. But fundamentally, the office is primarily a production factor for teams – not for lone wolves. It’s increasingly about the question: What can I do better on my own at home, why do I need the creativity and input from a group? In no case do I need a desk rental in the country or on the outskirts of the city.
Does this also apply to you? How high is the proportion of lone fighters?
It’s low. We do have individual offices. But in fact they are almost always used by companies in an ensemble. So there is a large room with a high quality of living – including a sofa, kitchen, terrace as well as the executive office and retreat rooms. This is a more or less stable setup. We often have project teams from large corporations or consultancies who want to work confidentially and discreetly. We can meet the sometimes high demands of these employees within just a few days. And when the project teams are finished, they can quickly move out again.
Jannik Tillar spoke to Joachim Gripp