Increasing vacancy rates observed in urban business centers
Berlin, Hamburg, Munich, Frankfurt, Düsseldorf, Cologne, and Stuttgart are experiencing a surge in office vacancies, with Berlin's rate remaining significantly above the healthy market level. The elevated vacancy rate is primarily due to a combination of factors, including structural oversupply, sectoral downsizing, tighter financing conditions, and a shift in work habits.
Structural oversupply is particularly prevalent in Berlin, with a forecasted vacancy rate of up to 9% by 2026. This oversupply is most pronounced in certain districts, where the amount of office space available exceeds the current demand. Düsseldorf and Frankfurt face an even more severe oversupply, with vacancy rates over 10%.
Traditional sectors such as banking and insurance are reducing their office space requirements due to consolidation and efficiency drives. Deutsche Bank, for instance, reduced its workforce by 3,500 in 2024, leading to less demand for office space and increased sub-leasing or surrendering of space. Insurance companies have also lowered their office needs due to muted premium growth and decreased support staff.
Elevated interest rates have tightened debt financing, leading to more cautious investment and revaluation of commercial properties. This tightening impacts office real estate values and demand, sustaining vacancy levels. Banks are also forced to build reserves for substantial property loans, further restricting real estate deal activity.
The general trend towards remote or hybrid work after the COVID-19 pandemic has reduced the need for traditional office space. This has contributed to rising vacancy rates as companies downsize office footprints or delay lease renewals, especially in less premium locations.
However, demand persists selectively for high-quality, well-located office spaces, especially in cities like Munich and Frankfurt where vacancy remains lower. Berlin's market suffers more from vacancies in lower-tier or structurally less attractive office properties.
Despite the increase in rented office space, deals are sometimes postponed, and companies often extend contracts rather than renting new space. Many companies are reducing their office space and disposing of old buildings.
The total amount of office space available for immediate occupancy in the seven major cities exceeded 7.6 million square meters in the second quarter. In the first half of 2025, around 1.4 million square meters of office space was rented, marking a 9 percent increase compared to the previous year.
The principle of "smaller but better" applies: companies are willing to pay high rents for modern spaces in prime locations, but old office buildings often remain empty, especially in peripheral locations. While prices for apartments and houses are rising, office properties are recovering slowly.
The article is sourced from ntv.de and uzh/dpa. Miguel Rodriguez Thielen, Head of Office Leasing at JLL Germany, has noted a waning of enthusiasm in deals compared to the beginning of the year. Rising interest rates and the end of the property boom have negatively impacted office markets, and the vacancy rate of office space has reached its highest level in over a decade in German metropolises.
The elevated vacancy rate in Berlin, as well as other German metropolises such as Düsseldorf and Frankfurt, is due to a combination of factors including structural oversupply and tighter financing conditions, which have resulted from increased interest rates and the end of the property boom. This situation has led some companies to reduce their office space requirements, as evident in Deutsche Bank's workforce reduction in 2024. Additionally, the shift towards remote or hybrid work has reduced the need for traditional office space, contributing to the rising vacancy rates, particularly in less premium locations.
Despite the increased vacancy rate, there is selective demand for high-quality, well-located office spaces, especially in cities like Munich and Frankfurt where vacancy remains lower. However, the increase in rented office space and companies extending contracts instead of renting new spaces suggests a cautious approach towards investing in office real estate, which may continue as banks build reserves for substantial property loans and impatients persist in the office markets.
