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It’s boom or bust for German offices. While sleek, modern spaces in prime locations are commanding record rents, their outdated counterparts are gathering dust—sometimes literally. According to the latest 2024/2025 Commercial Price Index from the German Real Estate Association (IVD), the divide between winners and losers in the office market has never been sharper.
“Companies today want spaces that reflect the future of work—flexible, sustainable, and located in the heart of the action,” says a spokesperson for the IVD. “The problem is, much of Germany’s existing stock doesn’t make the cut.”
With home-office use leveling off at 30%, businesses are no longer in retreat mode. Instead of cutting back, many are reimagining their workplaces as hubs for collaboration and innovation. This shift is fueling demand—and rising rents—for ESG-compliant office spaces in central locations. Munich, Stuttgart, and Hamburg are among the cities seeing rental spikes in the high-end segment, while older properties struggle to find tenants.
The numbers tell a stark story. In Berlin, vacancy rates for older office space have hit 6.7%, while in Frankfurt am Main, they’re nudging 10%. “If an office can’t deliver on location, quality, and sustainability, it’s a tough sell,” the IVD spokesperson adds. Germany’s prolonged economic slowdown, coupled with rising energy costs and tight financing conditions, is further dampening demand for secondary locations, leaving older, non-compliant properties in an unenviable position.
Clear divide between premium and problematic assets
Munich remains the heavyweight champion of Germany’s office market. Basic office space averages €23 per square meter—more than double the rate in Leipzig (€7.50). For high-quality space in the Bavarian capital, rents can reach a staggering €42 per square meter.
The story in other cities is more mixed. Hamburg has seen rents decline in lower-quality segments but climb for premium offices. Leipzig and Stuttgart have registered modest increases across the board, while Cologne remains flat. In Frankfurt, medium-quality office rents have plummeted by nearly 19%, highlighting the city’s ongoing struggles to fill non-premium spaces.
The turbulence extends beyond the office market. Prices for commercial building plots have dropped 5.7% year-on-year, according to the IVD index. While exceptions like Hamburg and Leipzig show localized increases, Munich again tops the charts, with land in prime locations costing up to €1,450 per square meter. Investor hesitancy, driven by high interest rates and economic uncertainty, has dampened activity across most cities, underscoring the challenges facing Germany’s commercial property market.
Retail, meanwhile, continues its long-term slide. Inflation-adjusted rents in prime locations have fallen by a third since 2010, yet Munich remains an outlier, where rents for small spaces in prime locations can still fetch €285 per square meter. Smaller spaces also command significant premiums over larger ones in Düsseldorf, Cologne, and Berlin, where rent discrepancies can reach up to 85%. These trends highlight the need for careful asset selection, as even prime locations carry risks in an evolving retail landscape.
Repurposing as the path forward
For landlords holding onto underperforming office assets, the IVD is advocating repurposing as a potential solution. Converting obsolete offices into desperately needed residential units could address both Germany’s housing shortage and the oversupply of outdated commercial stock.
The federal government has announced plans for a funding program in 2025, but political turbulence could delay its rollout. “Adapting these spaces is not just a necessity but an opportunity,” notes the IVD spokesperson. However, hurdles like zoning restrictions and renovation costs may complicate efforts, leaving many property owners at a crossroads.
For investors, the IVD’s findings emphasize the critical importance of understanding market trends and identifying opportunities amid the challenges. Premium office and retail spaces in prime locations remain strongholds, but older, less adaptable properties face an uphill battle. As the IVD spokesperson aptly summarizes: “The German market is in a period of rapid transformation. For those who can read the signals and act accordingly, the opportunities are significant. But for those clinging to outdated strategies, the risks are equally stark.”
