Real estate market under pressure
Every eleventh company wants to downsize offices
October 4, 2023, 5:42 p.m
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The corona pandemic has changed the world of work. While many companies have already adapted their offices to the new working models, working from home is leading to a slight decline in demand for office space in some industries.
Every eleventh company in Germany wants to reduce its office space due to the trend towards home offices. 9.1 percent plan to do this, as the Munich Ifo Institute announced in its company survey. “The overwhelming majority of companies are leaving their office space unchanged,” said Ifo expert Simon Krause. In individual sectors, however, the proportion of companies that want to downsize their offices because of home working is now established is very high – up to 40 percent. “Working from home leads to a slight decline in demand for office space and thus puts the real estate market under pressure,” Krause summarized the survey. This suffers anyway due to increased interest rates and construction costs.
“In the medium term, the trend towards mobile working and, above all, the consequences of demographic change are likely to lead to a decline in nationwide demand for office space of the order of ten to 15 percent,” said real estate analyst Sebastian Schnejdar. This, in turn, could result in a “sustained sideways movement in price developments on the German office property market”.
The price declines of almost ten percent observed so far in the second quarter compared to the same period last year are mainly due to the massive increase in interest rates. “We also expect office property prices to fall at current levels for the full year 2023,” said Schnejdar. A further slight price decline of 3.5 percent is likely to follow in 2024. So far, the supply of office space is still scarce, especially in major cities, despite the trend towards mobile working and the weak economy.
According to the Ifo Institute, there are major differences behind the average figures for the planned reduction of office space. In the service sector the proportion is 11.9 percent and in industry it is 8.1 percent. There are particularly many companies that want to downsize their offices due to working from home in the automotive industry (37.5 percent), clothing manufacturers (18.6), the broadcasting industry (40.3), the IT industry (21, 0), in information service providers (28.4) and in advertising and market research (34.8). In retail (3.7 percent) and the construction industry (1.9 percent), only a few companies intend to reduce their office space. According to the information, downsizing is planned particularly in industries in which home offices are used intensively.
The Ifo Institute has recorded a constant home office rate of a quarter of employees for more than a year. “After the pandemic it is clear: home office is here to stay,” said Krause. Many companies have already reacted and adapted their offices to the new working models, for example by introducing shared desks and more rooms for personal exchange on face-to-face days. “Other companies are planning to make adjustments in the coming years when the office leases, which are usually long-term, expire.”