Shrinking Space: Over a Quarter of German Companies Eye Office Downsizing
A significant number of businesses aim to decrease office space due to empty workspaces, as indicated by approximately 26% of companies.
Germany's corporate landscape is witnessing a shift, with a noticeable spike in companies contemplating the reduction of their office spaces. According to a survey by the Ifo Institute, a staggering 26.3% of companies believe their offices are underutilized. The survey reveals that around 10% have already downsized, and another 12.5% plan to follow suit within the next five years. The primary culprit? Good ol' remote work! That's what economist Simon Krause of the Ifo Institute suggests.
The rise in office downsizing is more pronounced today compared to last year, according to the Ifo survey.
Service providers lead the pack when it comes to empty desks. Close to 60% of companies operating in advertising, market research, film and television, and the IT sector have reported underutilized office spaces.
The economically challenging times ahead could further fuel this trend, claiming Krause. "This imbalance increases the pressure to adapt, and the office real estate market is likely to remain busy in the long term due to long-term rental agreements," he predicted. The Ifo Institute polls several thousand companies each month as part of their business cycle surveys.
What's Causing This?
- Economic Uncertainties: Germany's economic climate is grim, shaking company confidence in the office market. Fiscal uncertainties are pushing companies to reevaluate their space needs and cut costs[3].
- Job Cuts and Restructuring: Around one-third of German firms are gearing up for significant job losses in 2025, hinting at deeper problems in the labor market[2].
- Operational Efficiency: Companies like Adidas are slashing jobs (up to 500 roles in Germany) to streamline their operations[4].
Which Industries Are Taking a Hit?
- Manufacturing and Traditional Industries: Germany's dependence on traditional manufacturing makes it susceptible to global advancements such as AI and automation. Companies failing to respond quickly are likely to downsize[2].
- Technology and Digital Services: While traditional industries are shedding space, AI-focused tech companies could emerge as new office space demand generators, pointing to a prospective growth area for office requirements[3].
Looking Forward
- Ongoing Downsizing: The downsizing trend seems set to continue, driven by the need for companies to optimize their operations and save costs in a volatile economic environment[1][3].
- Shift to Premium Spaces: While downsizing, there's a growing preference for high-quality, sustainable office spaces. This suggests that although companies may reduce space, they are focusing on creating congenial work environments for employees[3].
- Office Leasing Market Recovery: The accrual of lease expiries and downsizing rates are expected to support the recovery of the office leasing market in Germany in 2025[5]. However, the economic outlook remains unsettled, potentially affecting long-term decisions.
Employment adjustments, driven by job cuts and restructuring, are contributing to the increased adoption of remote work, which in turn fuels the trend of office downsizing in various industries such as technology and digital services. Meanwhile, financial challenges, including fiscal uncertainties and operational cost-cutting, are prompting companies to reassess their need for office spaces, potentially leading to the leasing of premium, sustainable office spaces that focus on creating congenial work environments for employees.
