Commercial real estate market: sobering figures for office and logistics

09.02.2024 - Region, city and real estate industry take stock for 2023 in the two most important regional commercial real estate submarkets, office and logistics

The numerous crises and the shrinking German economy in the last quarter of 2023 shaped the regional real estate industry in the past year and significantly slowed down the investment decisions of players on both the supply and demand side.

This is the preliminary resultof the annual balance sheet drawn up by the region and the state capital of Hanover together with the most important and market-defining players in the regional real estate industry.

Theoveralleconomicsituation iscomplex and has led to an overall decline in German economic output in the past year. In the first quarter of 2023, the German economy grew by a minimal 0.1% quarter-on-quarter, adjusted for price, seasonal and calendar effects, according to the Bundesbank.

Gross domestic product in Europe's largest economy stagnated in the second and third quarters. In the final quarter, economic output shrank by 0.3 percent according to an initial estimate by statisticians.

While the office market in 2022was still able to build on the strong years of 2018 and 2019 with around 165,000 square meters of take-up, this was followed in 2023 by a significant slump of almost 50 percent to only around 85,000 square meters of office space.

The marketfor logistics and production propertieswill alsorecorda decline of one third to just under 280,000 square meters in 2022, after around 420,000 square meters of take-up. However, Hannover is not alone in this - all major German office locations and logistics regions have recorded sharp declines in take-up over the past year.

Compared to the previous year, cities such as Cologne and Munich, for example, also recorded a decline of almost 40 percent in office space take-up, while Hamburg, for example, registered around 40 percent less warehouse space take-up in the logistics sector.

Prime rents

However, prime rents are developingpositively in both markets despite the decline in demand. For logistics and production properties, a prime rent of EUR 6.20 per square meter was calculated for the very good properties last year (up EUR 0.40 on 2022). In the office sector, a prime rent of EUR 21 per square meter (up EUR 2.20 on 2022) was recorded in city locations in 2023.

"The German economy has been in permanent crisis mode for almost four years. After we were able to robustly escape the negative developments following the coronavirus pandemic, the overall economic trend has now caught up with us. For the future, it is important that we build on our strengths as an innovative service and production location and thus set new trends for the real estate market."

Ulf-Birger Franz, Head of Economic Affairs of the Hannover Region

"In 2022, the commercial real estate market was still able to benefit from the catch-up effects of the weaker previous years, followed by the expected slump last year. However, Hanover is fundamentally in a robust position and will stabilize again. With a view to the regional real estate industry, I see great opportunities for increases in demand and value through the consistent implementation of sustainability and climate targets."

announces Anja Ritschel, Head of Economic and Environmental Affairs of the City of Hanover

Current trends, data and facts on the regional real estate market are regularly compiled in thereal estate market reportproject groupunderthe leadership of the Hannover Region together with the state capital and currently a further 31 partners from the regional real estate industry.

For many years, bulwiengesa AG has provided expert advice to the project round. The 2023 annual report and continuously updated information on around 120 market-defining projects in the office, logistics, retail, residential and hotelsegmentsareavailable online at www.immobilienmarktbericht-hannover.de.ZurThe Real Estate Arena commercial real estate trade fair in Hanover (June 5-6, 2024) will once again focus on and update the three other major submarkets of retail, residential and hotel.