Value-added in standing properties – the second life of German offices

Whenever international investors talk about Germany, they tend to touch upon the safety aspect. What they have in mind is the country’s stable legal system combined with a reliable infrastructure and a diversified economy. But in addition to these well-known locational advantages, Germany offers another opportunity that has been more or less ignored so far: the systematic redevelopment of its existing office stock.

Olaf Classen, managing director of Montibus Asset Management

Why is Germany worth a closer look? First, because its market has a broad basis. Germany’s seven leading office cities accounted for a transaction volume of €35 billion in 2024. At the same time, vacancy rates in the prime locations of the ‘Big 7’ rarely exceed five percent. This goes to show that if you deliver quality product, you need not worry about demand – even when interest rates are up.

Secondly, the building fabric of German real estate is often better than the year of its construction would suggest. While it is true that three out of four structures were completed before 2010, they were principally built to the strict requirements of German construction law. This results in robust load-bearing frameworks that, while getting on in years, can be upgraded to current efficiency and convenience standards with a manageable effort.

Through pinpoint improvements—such as better insulation, smart building automation, photovoltaics—you can lower energy consumption rates by up to thirty percent while increasing a property’s market value at the same time.

Thirdly, the role of the office has changed. It now competes with the comforts of working from home. With this in mind, employers are seeking to provide environments that offer more than just desks and electric outlets: common areas, sports, gastronomy, digital services – in short, campus-like features. Added benefits of this sort are now crucial for a company’s ability to attract talent and to retain it long-term.

These elements can be implemented much faster and with a significantly smaller carbon footprint if you reposition a standing property rather than opting for an entirely new-build construction, because you make use of existing structures instead of removing them.

What does this look like in practical terms? The Highlight Towers in Munich - designed by Murphy/Jahn Architects and a conspicuous landmark for the technology drive of the zero years - were carefully redeveloped. AI augmented building automation, concierge services and 1,100  square metres of gastronomic amenities have replaced the single tenant concept. Their premises of 7,200 square metres were relet even before the upgrade works were completed – clearly demonstrating that energy efficiency and a great occupant experience can be dovetailed.

Further north, just outside Germany’s financial centre Frankfurt, the Omegahaus office scheme from 1994 is undergoing a renaissance. The installation of a new façade, a large scale photovoltaic system, a convention centre, a day nursery and a gym will bring the iconic building up to the level of the EGB55 energy efficiency standard and create space for up to 3,000 workplaces.

The conversion illustrates the way in which ESG compliance serves as basis for a holistic campus.

What the two examples have in common is that they provide answers to actual market issues. How do I bring down my operating costs? How do I ensure that my building will meet future ESG and efficiency requirements? How do I attract and retain talent? The best way forward is not necessarily to rebuild from scratch but rather a smart manage-to-green approach, not least because it also gives you the chance to transform existing sites into modern campus-like work environments.

Naturally, each redevelopment comes with its own challenges that range from approval processes to the shortage of skilled labour. But investing early on will reap twofold benefits. For one thing, you can still take advantage of attractive subsidy programs, tax incentives and construction costs at the current level – these being resources that, as empirical evidence suggests, will dry up as minimum efficiency standards are gradually raised and as inflation progresses.

Secondly, you exploit the fact that ESG planning capacities, while limited, are still available today, and that your upgraded property will be positioned on the market and coincide with demand for sustainable real estate long before subsequent property developments come on-stream. 

The question remaining is this: will the added value pay off even after a potentially extended high-interest rate cycle? I am convinced that it is precisely this cycle that will reveal the value of smart repositioning. New-build structures consume capital long before they generate their first rental income, whereas redevelopment projects let you synchronise your capital expenditures with progressive lettings – which means you do not commit your capital before lease agreements have been signed. This lowers your interest burden and mitigates the advance financing risk.

Making the second life of standing office real estate in Germany your business means investing in an evolved form of urban resilience by providing buildings that conserve resources, strengthen thriving urban blocks and deliver predictable earnings at the same time.

Olaf Classen is managing director of Montibus Asset Management