03.06.2025

Challenges in the German Office Market: Rising Vacancy Costs

Introduction

The rising vacancy costs in the German office market present a significant challenge for investors and savers. According to recent reports, the annual vacancy costs in the five largest German office markets, which include Berlin and Hamburg, amount to nearly two billion euros. This development has direct implications for the revenues of property owners and thus also affects the return prospects for investors as well as the risk profile of real estate investments.

Background and Causes

  • Changed Work Models: The increased prevalence of home office and hybrid work models after the pandemic has led to a reduced demand for traditional office spaces.
  • Economic Uncertainties: Economic fluctuations, inflation, and rising interest rates make it difficult for companies to enter into long-term leases or to continue using existing spaces fully.
  • Oversupply of Spaces: In many cities, there is an oversupply of modernized or newly built office spaces, which intensifies competition and promotes vacancies.

Impacts on Investors and Savers

  • Decline in Rental Income: Higher vacancy rates directly lead to decreasing rental income, reducing cash flows from real estate investments.
  • Rising Costs for Owners: In addition to lost rental income, additional costs arise from maintenance, management, and marketing activities to rent vacant spaces.
  • Valuation Risks: Persistently high vacancies can lead to depreciation in property values, which is particularly problematic for institutional investors such as insurance companies or pension funds.
  • Relevance for Retail Investors: Private savers with investments in open or closed-end real estate funds are also affected, as their distributions may decrease.

Conclusion

The current annual vacancy costs of almost two billion euros in the Big 5 markets underline the necessity for careful analysis of the market environment before any investment. For investors, this means increased risk while making forecasting future returns more challenging. For savers, it is important to be aware of potential impacts on their portfolios.