Office real estate market

Market sentiment and trends

The development of the last three years reflects the dynamic nature of the Hanover office market with its fluctuations. After around 165,000 sqm of take-up in 2022, which followed on from the strong years of 2018 and 2019, there was a significant slump of almost 50% to around 85,000 sqm of office space take-up in 2023.

There have been clear signs of recovery since the fourth quarter of 2024. At around 139,000 sqm in 2024 as a whole, the 2023 figure was exceeded by around 54,000 sqm. Around 63,000 sqm of office space had already been taken up by mid-2025 - more than in the first half of 2024 (50,000 sqm). Take-up of over 120,000 sqm is expected for the year as a whole.

Both prime rents and vacancy rate on the rise

Market participants therefore expect prime rents to rise significantly to up to EUR 24.50 per sqm - compared to EUR 21.50 in the previous year.

Prime rents are also expected to rise to EUR 18.00 per sqm on the outskirts of the city. Realizable average rents will rise moderately compared to 2024, both in city locations and on the outskirts.

Comparatively high completion figures compared to the slow recovery in demand will lead to a slight increase in the vacancy rate in the city of Hannover to 5.3% by the end of 2024 (2023: 4.9%). Market participants expect the vacancy rate to rise further to 5.8% in 2025.

Sharp slump in completions

With a volume of 52,000 sqm of new build completions and refurbishments in 2024, there will be a sharp slump compared to the previous year, when a record figure of over 100,000 sqm was achieved. The high level of completions in 2023 was mainly due to the completion of Continental's corporate headquarters. In 2025, only just under 55,000 sqm of office space is expected to be added to the market through new construction and refurbishment. In the medium term, a further decline in completions is expected, which should settle at a level of just under 40,000 sqm per year.

Investment market for offices picks up slightly

While the letting business has picked up significantly since the fourth quarter of 2024, the investment market for office properties is only slowly regaining momentum. The transaction volume in 2024 only rose from €85.5 million in the previous year to just under €107 million.

Institutional players in particular are acting very cautiously. A small number of newly initiated or as yet uncompleted sales processes mean that market activity remains subdued.

In the office sub-market, there are signs of a gradual easing of price negotiations between the buy and sell sides. This "pricing squeeze" between buyers and sellers seemed to last longest in the office submarket in particular. The prime yield estimated as achievable is seen by market participants at 5.2 % in 2025.

Outlook: The changing world of work is drastically altering the demand for space

The changing requirements for office space due to remote working reflect a new working reality. Since the coronavirus pandemic, up to 70% of employees, particularly in typical office jobs, have worked at least partially from home or in external locations such as co-working spaces. Although this trend appears to be flattening out somewhat, real estate market experts expect demand for space in Germany's A-cities to decline noticeably in the medium to long term.

However, the exact extent remains sector-specific and remains to be seen. In addition to changing forms of work, demographic change will slow the growth in the workforce and thus further dampen demand for office space. Economic impetus and supra-regional appeal remain decisive for a revival of the rental market.

Focus on high-quality buildings in attractive locations

At the same time, companies are increasingly trying to encourage their employees to work in the office more often in order to strengthen communication, knowledge sharing and identification. The willingness to invest in attractive, high-quality properties of their own or rental properties is increasing, particularly among large companies and institutions, including in Hannover. They are already reassessing their space requirements and adjusting their strategies accordingly.

Many small and medium-sized companies, on the other hand, are still in the discovery phase. For office space that is no longer required in the medium term, it is important to develop prospects for future use. Conversion to residential space or so-called serviced apartments are possible approaches, but are often associated with high costs and challenges due to legal and structural aspects.

The changing requirements and expectations of companies and their employees for office space are bringing ESG factors in connection with location, design, technology and space quality more into focus. At the same time, existing buildings of older standards in peripheral locations are coming under further pressure. The rents shown in the report are no longer achievable everywhere.

Market environment remains tense - improved negotiating position on the tenant side

Rising vacancy rates and an increasing number of sublet space offers are an indication that companies are downsizing or consolidating space when renting new premises. If vacant office space is still under contract for months or years but is effectively unused, market participants also speak of additional shadow vacancies.

While older and lower-quality existing buildings, especially in less attractive locations, are struggling with increasing vacancies, potential tenants of high-quality space are confronted with higher prime rents. At the same time, many companies are currently offering their space for subletting, which could strengthen the negotiating position of tenants.

In Hanover, market participants are observing that incentives are being granted more frequently, with landlords seeking the longest possible contractual commitment in return. It is noticeable that both sides are under pressure.

Market environment remains challenging, but demand is picking up again significantly despite existing uncertainties