The ongoing shift towards remote work is expected to significantly impact the real estate market in the coming years, with researchers from the Ifo Institute predicting a 12 percent decline in the demand for office space.
German companies are increasingly reducing their office space due to the persistent trend of regular remote work. According to a survey conducted by the Munich-based Ifo Institute, 6.2 percent of businesses have already downsized their office space. Additionally, 8.3 percent of companies plan to do so within the next five years. “This trend is particularly strong among service providers and large corporations, which utilize the majority of office spaces,” said Ifo researcher Simon Krause. “One in four of these companies has either already reduced their office space or plans to do so.”
The remote work rate in Germany has remained stable over the past two years, with a quarter of employees and two-thirds of companies regularly engaging in home office work. “Despite calls from some companies to return to the office, regular remote work has become established,” Krause noted. “As a result, companies have gradually adjusted their office space requirements.”
Since office lease agreements are often long-term, the overall impact of this trend is expected to manifest gradually. “Based on our studies, we anticipate that the demand for office space will decrease by about 12 percent in the long term due to remote work,” Krause added.
Service providers and large companies are the most likely to reduce office space:
- 11.8 percent of large service companies have already downsized, and 14.0 percent plan to do so within the next five years.
- In the industrial sector, 5.6 percent have reduced space, with 6.8 percent planning to follow suit.
- The retail sector has seen a 1.7 percent reduction, with 4.5 percent planning further cuts.
- In the construction industry, only 0.2 percent have reduced office space, with 1.6 percent planning to do so.
- Among small businesses, 4.2 percent have downsized, with 6.1 percent planning to do so.
“The reduction in office space presents challenges for the already strained real estate market,” Krause explained. “Coupled with economic uncertainties, rising interest rates, and construction costs, a swift recovery is not in sight.”
