German office market outlook remains vulnerable, PBB index shows

By Tom Sims

FRANKFURT, Feb 20 (Reuters) - Germany's office market remains depressed, with any recovery in the coming months seen as vulnerable to further economic weakness, according to an index by the property lender Deutsche Pfandbriefbank PBBG.DE (PBB) released on Thursday.

The bank's quarterly index tracking the office market rose to minus 1.86 in the fourth quarter of last year, up slightly from minus 1.92 in the third quarter.

Despite the gains, the index is only marginally above its lows earlier in 2024 and remains well below the zero level that separates growth from contraction in the sector.

The commercial real estate market in Europe's largest economy has been in crisis for the past three years after the European Central Bank embarked on a series of interest rate increases to fight rampant inflation. Recent rate cuts have helped stabilise the market, but the outlook remains bleak.

"Any recovery on the investment markets over the next few quarters will only be moderate and very crisis prone," PBB said.

A weak economy means that "cautious behaviour on the office markets will continue in the short term."

The troubles have hit Germany's financial capital of Frankfurt. Last year, the owner of a prominent skyscraper that is home to Germany's central bank and a top asset manager filed for bankruptcy.

But in a more recent sign of confidence in the market, Germany's Commerzbank signed a 15-year rental contract for a new high-rise office that is currently under construction.