DTZ Echinox: Throughout 2014, the local market has been driven by relocations

Throughout the first three quarters of 2014, Bucharest office market has registered positive evolutions. The pre-lease activity has demonstrated consistency, new demand's share in total take-up has gained importance and the rental level continued to be considered attractive by most office occupiers .

2014-11-25 16:04:04

Between Q1-Q3 2014 eight office buildings were delivered, increasing Bucharest's office stock with 4 per cent. At the end of Q3, modern office stock in Bucharest was of 2.12 million sq. m and is estimated to reach by the end of the year approximately 2.18 million sq. m. Approximately 72 per cent of 2014's new supply is already under a lease agreement. As a direct consequence, during Q1-Q3 2014, the general vacancy rate for class A & B office space has decreased from 16.7 per cent to 14.5 per cent. More than that, during the 3rd quarter of 2014, the vacancy rate has fallen in all sub-markets.

Finding Bucharest's office market conditions interesting, developers are already announcing new projects. Most of them are investors with a proven track record in delivering office projects in Bucharest, are familiar with the needs of the office occupiers and thus have the experience and the knowledge necessary in order to attract tenant's interest towards new office projects.

Currently under construction with an estimated delivery date for the next two years are 166,000 sq. m. Additionally, more than 500,000 sq. m of office space located all over Bucharest are in different stages of planning. However, only projects with a solid pre-lease agreement in place are likely to get financing.

The majority of office space currently under construction in Bucharest is due to be delivered in 2015-114,000 sq. m, out of which 25 per cent has been already pre-leased. As in 2014, most of 2015's new supply is concentrated in Central North and West, areas that in the recent years have attracted the interest of some of the largest office occupiers present on Bucharest market. Among the office projects due to be completed next year are: AFI Business Park IV&V, Green Court – phase II, Bucharest One and Mincu Offices.

In terms of office starting construction works, between Q1-Q3 2014 four office projects have been started, all four located in are as that were registering at the end of Q3 2014 vacancy rates below city's average: Bucharest One in Central North area (13.5 per cent vacancy rate), The Landmark in CBD (8 per cent vacancy rate), Hermes Business Campus-building C in Pipera South (7 per cent vacancy rate) and AFI Business Park-IV&V phases in West (8 per cent vacancy rate)

Demand: Bucharest's office leasing activity during Q1-Q3 2014 is of 195,000 sq. m. Take-up represents 80 per cent, with 156,000 sq. m transacted and compared with the similar period of 2013 is with 25 per cent higher. Relocations within class A & B account 47 per cent from total take-up- 73,000 sq. m, with pre-lease transactions representing 55 per cent of the relocation activity. New demand accounts 53 per cent from total take-up - 83,000 sq. m, out of which 16 per cent are pre-lease transactions.

Renewal and renegotiation activity during Q1-Q3 2014 is of 39,000 sq. m. This type of leasing activity has been on a downward trend this year and compared with the same period last year is with 43 per cent lower. However, the option to renegotiate and renew the current leasing terms continues to be attractive for some of Bucharest's largest office occupiers. Renault, one of the main tenants on the local market, occupying approximately 20,000 sq. m, has recently announced its decision to remain in the current location for another four years.

During Q1-Q3 2014 pre-lease transactions have been the largest deals in terms of area. Considering that for the office project that Globalworth is planning to develop in Pipera South, a pre-lease deal of 25,000 sq. m has been recently signed, 2014 will be the first since 2008 to register large pre-lease transactions throughout all quarters

This year, new demand's share in total take-up has gained importance. Represented by expansions, relocations from noncompetitive stock to class A & B office space, existing tenants opening new operations or new companies entering the market, new demand has increased considerably during the first nine months of 2014.Compared with the similar period of 2013, new demand is with approximately 40 per cent higher. This represents one of the most important factors that lead towards a gradually decrease in vacancy during 2014.

Pre-lease transactions continue to be the main driver for development however, considering that most are postponed relocations, new demand or simply put, pure take-up, is revealing the status of the business environment and the attractiveness of the office market conditions.Technology & Telecom companies were the most active office occupiers during Q1-Q3 2014, with 47 per cent from the leasing activity registered. Not surprisingly, since the largest deals were signed by tenants active in this sector-Vodafone, Orange, Microsoft, Endava, Telus. Another active business sector this year was the Manufacturing & Industrial sector, with 16 per cent share in leasing activity, followed closely by Professional Services, with 14 per cent.

Bucharest office market has registered during the first nine months of 2014 favorable trends. Demand for office space has been on the upswing and, as a result, development has also revived. This demonstrates that investors are starting to have faith that the considerable investment that is required to build new buildings will bring returns.

Throughout 2014, the local market has been driven by relocations. With office buildings that offer high technical specifications,good accessibility and a very competitive rental level, tenants were inclined towards relocation, rather than renegotiate and renew the current leasing terms.Compared with previous years, when tenants that were committing to a new lease acquisition were also reducing the percentage of occupied space, this year most office occupiers have increased their business premises. Also, companies that were accommodating their operations in business centers that provide serviced office accommodation, have moved their operations by acquiring a considerably larger amount of office space.