Germany’s office property market is at a turning point. While vacancy rates soar, housing shortages in major cities grow ever more pressing. On the surface, converting outdated office buildings into homes seems like an obvious solution. Yet, as Sebastian Mall, Munich branch manager at apoprojekt, highlights, the reality is far more complex.
Vacant office space in Germany’s top seven cities reached around six million square metres in 2024, driven by hybrid work, high interest rates and slowing demand. Meanwhile, the country needs over 370,000 new apartments each year to meet housing demand, but supply lags far behind. Could conversion be the missing link?
Living Space Instead of Office Wasteland?
Studies suggest up to 150,000 new apartments could be created in Germany’s seven largest cities by re-purposing older, less sustainable office stock. Yet legal restrictions, technical barriers and the economics of location limit the viability of such projects. “The decisive factors are structural suitability, economic viability and a robust utilisation concept,” notes Steffen Wittwer, Managing Director at Sonar Development. Their Eschborn project demonstrates how subsidised and privately financed housing can emerge from vacant offices – but also shows how complex and costly such transformations remain.
Correct and Important, But Not a Panacea
Even when successful, conversion is no silver bullet. High construction costs of €1,500 - 2,500 per square metre demand high rents, often unachievable in peripheral areas. While ecologically and politically appealing, the economics rarely align with affordable housing goals. Instead, commercial apartment models promise better returns - drawing increasing interest from investors.
Serviced Apartments on the Rise
Serviced apartments, sitting between residential and hospitality, are booming. Germany already has over 55,000 units, with another 41,000 in the pipeline. Unlike residential housing, these projects can be realised in commercial areas, bypassing regulatory hurdles. apoprojekt has already delivered examples in Munich, including Stay KooooK and Limehome, both offering flexible, digitally driven medium- and long-stay solutions.
A Fast-Growing Asset Class
Serviced apartments meet the needs of a broad audience: business travellers, expatriates, young professionals and project workers seeking comfort and independence at affordable rates. “They have established themselves as a fast-growing segment in the hotel property market and will continue to gain in importance in B, C and D cities in the future,” explains Dr Katalin Herzog of Engel & Völkers Hotel Consulting GmbH.
"Portfolio holders and investors have no choice but to consider alternative uses for older office properties – the risk of a stranded asset scenario is too high. Although converting these properties into urgently needed residential space sounds like a sure-fire success, it usually fails due to economic considerations. The situation is different for commercial apartment concepts: this asset class is booming and generating impressive returns."