Bucharest is pivoting towards a tenant market for office buildings

  • The stock of modern office spaces in Bucharest reached nearly 2.7 million square meters last year, up 12% compared to the previous year.
  • An additional 700,000 square meters could be delivered over the next two years, which means a 25% increase in the current office stock, which will increase competition for attracting new tenants, shows the annual report released by Colliers International.
  • The tenants will thus be in a position of strength in negotiations, and vacancy is expected to climb upwards to 12%, maybe even towards 13%, by year-end.

Over 365,000 square meters were rented in 2019, up c.12% compared to the previous year, representing expansions of existing leases, new tenants entering the Romanian market and relocations from the stock of modern buildings. At the same time, lease agreements for 144,000 square meters were signed for office spaces to be delivered in 2020 or in subsequent years.

New office space delivered in 2019 reached about 286,000 square meters, nearly double compared to the 150,000 square meters delivered the previous year, but under the initial estimates of Colliers consultants of  360,000 square meters, as two large projects were postponed for 2020.

Bucharest Center West submarket was the star

The Center West submarket was, by far, the most active, generating close to 100,000 sqm of new leasable office spaces in 2019, so a bit over one third of overall deliveries, with other spaces spread around various submarkets in central locations, the CBD, but also Floreasca – Barbu Vacarescu.

The biggest project to come online was the Globalworth-built Renault HQ in the West submarket (47,000 sqm), followed by Vastint’s Business Garden Bucharest (over 41,000 sqm) and Portland Trust’s Expo Business Park (over 38,000 sqm) in the Piata Presei-Expozitiei submarket.

Outside Bucharest, projects totaling 94,000 square meters were delivered in 2019, three quarters being buildings built in Cluj-Napoca (37,000 sqm) and in Timisoara (35,000 sqm), followed by Brasov (15,000 sqm) and Iași (7,000 sqm). This year the stock of office space is estimated to increase by 150,000 square meters in these four cities representing major office hubs.

2020 is set to be a good year for the Bucharest office market, with Colliers consultants predicting demand for around 320,000 square meters, of which 120,000 square meters net office space. As in previous years, IT and financial services companies will be the main drivers of demand in 2020.

”The wave of deliveries from 2019 is reduced this year to 200,000 square meters, but with a spectacular return in 2021, when developers anticipate a potential of around 500,000 square meters, a new historical record. Thus, competition is on the rise between developers, but with the owners of existing modern buildings, which lost via relocations, just last year, tenants occupying 140,000 square meters. The tenants will be the ones who will enjoy opportunities, because Bucharest is starting to become a tenant market for office buildings. There will be increased competition for attracting new tenants, including from older buildings, some in very good locations, but which were built by inexperienced developers or which have not been investing in technical upgrades. The vacancy rate could reach 12-13%, up from 10.5% in 2019”, explains Sebastian Dragomir, Partner & Head of Office Advisory Colliers.

The rents for offices remain relatively stable, with prime headline still around 18 euros per square meter in Bucharest (and an average in the region of 14 euros per square meter), respectively between 11 – 14.5 euros per square meter in other centers in the country. Romania has an investment yield of 7% for the best office buildings (likely to come down further in 2020), while in the countries of the region the yields are even 3 percentage points below: 4% in Prague, 4.5% in Warsaw and 5 % in Budapest.

From the landlord’s perspective, this normalization of activity is coming at a moment when deliveries are slowing down as well, with 2020 having some 200,000 sqm in new GLA planned; 2021 is looking more crowded, with around half a million sqm in new leasable areas promised by developers. Given the realities of the market, Colliers consultants would expect that a significant amount of this pipeline for 2021 to be pushed back, as not all developers may score a major anchor tenant.

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