Office presence or home office ?: Poker about office real estate is imminent


Office presence or home office?
Poker for office real estate is just around the corner

Many employees have now been working from home for almost a year. Quite a few offices are orphaned. Some large companies have already used expiring leases – and have moved out of their office space. But despite the home office trend, offices remain attractive for many investors.

Empty corridors, orphaned desks – as clear as the picture has been in many offices for more than a year, the long-term effects of the pandemic and home office on the booming market for office real estate are still unclear. With the hope of vaccination success and an end to contact restrictions, the question arises as to whether employees will return to their offices in droves at some point, and whether real estate will continue to be in demand. Or whether companies see home office as a savings potential, reduce space and let office towers with a high-gloss lobby and desk become obsolete for everyone.

There will be no return to the “run-of-the-mill nine-to-five office” – at least not for everyone, says Tobias Just, Professor of Real Estate Management. Just as little will it remain with home office arrangements like in the pandemic. Like other experts, the scientist from the University of Regensburg assumes that after Corona, companies could switch to a mixture of office presence and work from other locations such as the home office. Whether this new flexibility will lead to a reduction in office space and falling rents, as Just predicted, is anything but consensus. “You can find advocates and investment capital for almost every theory.”

Offices remain attractive for investors

Office properties in Germany are still attractive targets for investors, says the managing director of the Association of German Pfandbrief Banks (vdp), Jens Tolckmitt. However, investor demand is currently developing downwards, which is a reaction to the pandemic-related uncertainty prevailing in the market. “At the moment, however, we do not see any indications that prices for office properties could fall noticeably.” Rather, a longer sideways development and later a return to a moderate growth path can be expected. In 2020, inflation slowed steadily from 8.4 percent in the first to 1.7 percent in the fourth quarter.

For the year as a whole, the vdp, whose over 40 members are behind 55 percent of all commercial real estate loans in Germany, still calculated a price increase of 5.2 percent. The economic effects of the crisis left their mark on the rental market at the beginning of the year, as real estate consultancy Colliers stated. However, there was no dramatic collapse in demand and vacancy rates remained low overall.

In Germany’s top markets of Berlin, Frankfurt, Munich, Hamburg, Cologne, Stuttgart and Düsseldorf, they rose slightly in the first quarter, as expected, according to Colliers: to 3.8 percent after 2.9 percent a year earlier. “The corona pandemic will have a negative impact on office demand,” predicts Jefferies analyst Thomas Rothäusler. But there is a high level of uncertainty about how much space employers can really save.

According to surveys, many employees wanted to work at home for about two days after the pandemic. It is less clear, however, whether they also accept that they no longer have a desk to themselves in the office – a prerequisite for giving up space. And employers are already reluctant: According to the Institute of the German Economy, only 6.4 percent of almost 1,300 companies surveyed planned to reduce their office space in the fourth quarter.

DWS is reducing its own space and office share in the portfolio

DWS has already implemented this. The asset manager of Deutsche Bank took the opportunity that at the end of March his lease in the Frankfurt “Welle” expired, while a large part of the workforce in the building complex stayed at home anyway – and moved out. In the future, DWS employees will be able to work partly from home, partly on the Deutsche Bank campus and also share desks there, says a DWS spokesman.

The aim was to move employees together, and the costs saved by giving up space were a positive side effect. Matthias Naumann, Head of Investment Strategy for Real Estate Funds at DWS, assumes that the consequences of an increased home office share for the office real estate market will only become apparent in three to four years. “Many, especially smaller, companies don’t even know where they’re going,” he says. You are currently practically on autopilot and continue as before. Naumann does not expect a real crash in the market for office real estate.

In its own investment portfolio, especially in the case of broadly diversified funds, DWS wants to reduce the strategic target figure for investments in office real estate from 50 percent to 40 percent. This is still the largest item, but the reduction is considerable.

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