Slashing Office Spaces: Over 26% of German Companies Want to Shrink Offices Due to Vacancies
Approximately one quarter of businesses aim to decrease office space due to vacancies.
Germany is seeing a wave of companies looking to trim their office spaces. A survey by the Ifo Institute in Munich reveals that more than a quarter (26.3%) of firms find their offices are underutilized [Krause]. Nearly 10% have already downsized, and another 12.5% plan to do so in the coming five years. The driving force behind this trend? Remote work, as Ifo economist Simon Krause explains.
In comparison to August 2024, more firms have already curtailed their space, along with a greater number planning to move to smaller premises, as the Ifo survey shows.
The industries hit hardest by this underutilization are advertising, market research, film and television, and IT. Over 60% of companies surveyed in advertising, 59% in film and television, and 53% in IT report underused offices.
The Ifo Institute anticipates tough economic times will amplify this trend. "The imbalance will boost the pressure to adapt and keep the office real estate market busy for years, thanks to long-term leasing agreements," Krause predicts. The Ifo Institute conducts surveys with several thousand companies each month as part of their business cycle surveys.
Source: ntv.de, dpa
Underlying Forces
The reduction of office spaces in Germany stems from multiple influences:
- Remote Work: With more employers adopting flexible work arrangements, employees are spending less time in traditional offices, leading to unused spaces.
- Economic Climate: Variables like inflation, high construction costs, weak demand, and economic instability affect industries like office development and utilization as companies may reconsider expanding or maintaining large office areas.
- Vacancy Rates and Real Estate Market Dynamics: Rising vacancy rates in the German office market, currently at an average of 7.4% in the Big 7 cities and projected to hit 7.8% by the end of 2025, indicate companies are not maximizing their office space.
Affected Industries
- Technology and IT: Industries that promote flexible work options, such as technology and IT, experience reduced demand for traditional office spaces.
- Finance and Banking: Advances in digital banking could lead to roles that require less physical presence, exacerbating office space underutilization.
- Professional Services: Firms in sectors like consulting and law could see lower office usage due to remote work options.
Overall, the shift towards remote work and economic difficulties are fuelling the decline in office space across various industries in Germany.
Employment in the technology and IT sectors, particularly those offering flexible work options, is reducing the demand for traditional office spaces due to remote work. The economic climate, influenced by factors such as inflation, high construction costs, weak demand, and instability, also contributes to the underutilization of office spaces in the office development and utilization industries. Furthermore, financing and banking, as well as professional services like consulting and law, might experience lower office usage due to advancements in digital banking and remote work options, respectively, adding to the employment reduction in office spaces.
