After forces entered the building in an industrial area of Freiburg, police said those with the 36-year-old man were family and friends trying to calm him down and not hostages.
The Turkish man claimed to be armed and to be carrying a flammable liquid.
Police said the hostage-taker was known to them.
Mediators spoke with the man overnight on the telephone but could not get any sense out of him.
The man has previously committed arms and drugs offences, police said.
On Thursday he was supposed to be in court over drug offences but never appeared. Instead he phoned the police and said he was prepared to do anything.
He was agitated apparently because he feared "consequences" of not showing up to court.
Follow us on Twitter @thelocalgermany
Like The Local Germany on Facebook