CESAR

The real estate industry is responsible for around 40% of the global energy and 50% of the natural resources consumed. Consequently, a circular economy that focuses on the durability and recyclability of materials is in greater demand than ever before.

In 2020, the EU Commission adopted a Circular Economy Action Plan (CEAP) for the circular economy. One of the principal focuses of this plan is on the longevity and recycling of raw materials and products, and although not legally binding, it forms a political basis for possible implementation. The Federal Government, which receives expert advice from society, politics, business and science that jointly develop strategies to reduce environmental pollution, and to protect biodiversity and the climate, recently drafted its National Circular Economy Strategy (NKWS) which was based on CEAP.

We use CESAR to analyse green buildings in the Big 7 office property markets (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart). In our analysis, we always use the terms ‘certification’ and ‘certified’ to refer to properties which are certified, pre-certified or registered for certification. We have investigated the stock of, and demand for office space in these markets, but not developments under construction or at the planning stage. We have taken account of all recognised certificates in Germany, i.e. DGNB, LEED, BREEAM.

The transformation of the German office market is in full swing. The change in working life is leading to a change in demand for space from businesses. Technological progress, flexible working models and modern office concepts to improve productivity, well-being and reduce the carbon footprint are just some of the factors that are considered in streamlined corporate strategies. Consequently, the focus of business has shifted from the expansion of office space to consolidation and downsizing. This, together with the weak economic outlook, explains the current lower demand for office space. However, the needs of potential users have also changed, with quality and defined ESG commitments coming under increasing scrutiny. An office is now examined from all angles before a new lease can be signed. There is little room for compromise at present, and often a business’s only option is to remain in its current premises until the optimal relocation opportunity presents itself.

By the end of the first half of 2024, the office stock in Germany’s Big 7 cities totalled 98.74 million sqm. This includes 13.69 million sqm of space (14%) that is certified, pre-certified or awaiting certification. The stock of certified space has increased by 2.4 percentage points (2.57 million sqm) since the first half of 2023 due to certifications of existing buildings, new applications, certifications that have subsequently been announced and office space completions. Three of the largest completions in the past 12 months are the EDGE East Side with 60,700 sqm, X8.Berlin with 45,600 sqm (both in Berlin) and DER bogen in Munich with 39,100 sqm.

Traditionally, Frankfurt has the highest proportion of certified space in the total office stock, with 27% (3.21 million sqm) certified. This means that the proportion of certified stock there has increased by a third within five years. The Munich region has observed dynamic growth of 122% over the same period, recording an increase of 1.82 million sqm compared to mid-2019. Almost one in every seven square metres in Munich now has a certificate compared with nine square metres 12 months ago. This increase can be partly attributed to a completion volume of around 422,000 sqm of certified space and by the subsequent awarding of DGNB Certificates for Operational Buildings to, for example, the Lenbachgärten (Blocks B and F), Machtlfinger Höfe and Heimeran.

Take-up of office space in certified buildings accounts for a significant proportion of total take-up - certification plays a prominent role in Frankfurt in particular

A total of 1,271,800 sqm of office space was taken up in Germany’s Big 7 markets in the first half of the year, with 421,500 sqm, or a third of this, attributable to certified buildings. The certified buildings figure includes pre-lettings of 187,600 sqm, or 45% of the certified space, in project developments that do not yet count towards the total office stock.

Frankfurt recorded the highest take-up in certified buildings of the Big 7 markets with 121,500 sqm. This corresponded to almost two-thirds of Frankfurt's total take-up. The largest lease by far (34,100 sqm) was signed by the European Central Bank in the LEED Platinum-certified Gallileo office tower in the Banking District. Munich followed in the take-up statistics by share with 110,400 sqm (37%) and Stuttgart with 31,500 sqm (34%). Berlin recorded the lowest take-up of space in certified buildings of the Big 7 with 18%. In terms of deal size, the Gallileo deal was followed by the 25,200 sqm of space in X8.Berlin leased by Bundesanstalt für Immobilienaufgabe (Institute for Federal Real Estate) and the 14,000 sqm secured by Stuttgarter Straßenbahnen AG in the W2 campus in Stuttgart. The final two top 5 deals (both secured by owner-occupiers) were concluded by Bayerische Versorgungskammer in Tridea, Munich (20,400 sqm) and STRABAG Real Estate in BORX, Hamburg (18,000 sqm).

361,800 sqm of office space was taken up in top locations in the Big 7 markets, 39% of which (140,300 sqm) was certified space. At 213,900 sqm, the greatest volume of certified offices was rented in secondary locations, although the share of total take-up in secondary locations was just six percentage points lower. The remaining third-tier locations accounted for 67,300 sqm and a share of 26%.

Although banks, financial services and insurance companies were not the most active players in the office market in the first half of 2024, the industry statistics show that these sectors, together with companies from New Media, were clearly focused on securing office space in sustainable buildings, accounting for 82%, 70% and 68% (respectively) of the volume of space leased. Many banks advertise sustainable financial products and have committed themselves to their own ESG goals. Accordingly, they are also paying attention to sustainability when securing their own office space.

An analysis of the countries of origin of tenants in higher volume transactions (> 1,000 sqm) shows that domestic companies made a significant contribution to total take-up. At 283,700 sqm, 43% of the office space was certified. International tenants accounted for a further 61,200 sqm of the space taken up, with 53% of this space certified.

Moreover, an analysis of large transactions shows that, at 43%, the share of certified space in this size category is significantly higher than the share of total take-up (33%). Larger companies in particular have formulated their own sustainability goals and demonstrated this in their rental behaviour. 

Developments in the Big 7 markets are supporting the trend towards sustainable and energy-efficient properties in the office sector and the demand for space in sought-after prime locations. Certifications play an important role for tenants and investors, and are increasingly included in decision-making processes. This applies particularly to players focused on providing environmentally friendly, energy-efficient and healthy working environments. The strong demand for certified office space is significantly outweighing the current supply, suggesting that a combination of increased investment and certification is required in both existing buildings and project developments to meet the rising demand.