Money Buzz! Europa

Tag: office market

  • The Romanian investment market grew in the first half of the year

    The Romanian investment market grew in the first half of the year

    The first half of the ”pandemic year” closed with a total value of investment transactions worth 408 million euro in Romania, around 18% above the first semester of 2019.

    Office assets accounted at nearly 86% of volumes, according to Colliers International’s market report for the first semester of 2020.

    Still, the outlook is uncertain since several large big-ticket items have either been frozen or fell through. On the opposite pole, the local land market continues to see deals closing and significant interest.

    Similar to the CEE region, Romanian investment volume was up in the first half of the year, to 408 million euro, around 18% above the first semester of 2019.

    Over one quarter of the volumes recorded in Romania was generated by the GTC portfolio sale to the Hungarian Optimum Private Equity Fund, which includes several office projects in Bucharest (deal estimated around 116 million euro for Romania).

    Two similar-sized deals (in excess of 50 million euro) came from the closing of the third phase of The Bridge office project (purchased by the owners of the Romanian DIY chain Dedeman) and Global City Business Park offices (purchased by Greek-owned Arion Green).

    In fact, nearly 86% of volumes were generated by office projects, mostly located in Bucharest.

    There is potential to see some opportunistic or value-add transactions

    Overall, 2020 may look like a sluggish year, with volumes in the 600-700 million euro range, though a lot will depend on if and how the deals which were frozen or fell through during the lockdown period may be recovered.

    There is also potential to see some opportunistic or value-add transactions, though we would argue that it may take some time for the seller or his companies to hit trouble, requiring a fire sale approach to raise some cash quickly.

    At the Central and Eastern Europe (CEE) level, almost all markets have seen an increase in yields compared to end-2019 for office and retail assets. Investment volumes in the CEE region printed at nearly 6.3b billion euro in the first semester of the year from just under 6 billion euro, which translates into a roughly 5% increase.

    New plots are put up for sale with rather normal prices, as if the pandemic did not exist

    In the land market, the activity is almost normal and some deals even went ahead during the lockdown period. Demand from retail players has arguably been the best in the first semester of the year.

    Though demand for plots geared at big shopping centers/malls has indeed stagnated, retail park developers and big box owners all continued to look towards new projects in various parts of the country that have a subpar offering of modern retail spaces. We even have a new entry on this space that surfaced during the lockdown period.

    Nevertheless, a few big deals, in excess of 10 million euro, that seemed likely to close in 2020 may not happen this year, rather next year. Residential developers are still holding on to a fairly robust demand for land, though not on par with 2018-2019 levels, which have seen record highs (hence, a lot of them have strong land banks); still, most remain on the lookout for any opportunities, including consolidating land around current projects.

    Supply remains adequate, from various categories of sellers which have been present in the market in the last years. New plots are put up for sale even now and not necessarily at any discounted prices, but rather normal prices, regardless of the pandemic context, on account of continuing demand.

    Furthermore, there have not been any distressed assets to begin with, though the economic woes are still only a few months old and time may bring out some financial weaknesses for some individuals or companies, forcing them to scale back prices for a quick sale.

    On the price front, Colliers International consultants expect things to remain rather flat (with potential downward adjustments only on a case-by-case basis), unless things take a sharp turn for the worse. 

  • First semester of the “pandemic year” in Bucharest office market

    First semester of the “pandemic year” in Bucharest office market

    New office space delivered in the first half of the year reached nearly 105.000 square meters, in tune with Colliers International’s estimates, but total demand in Bucharest was down by nearly 28%, to a bit over 124,000 square meters, while new demand halved after an exceptional year, to under 45,000 square meters.

    Overall, Colliers International consultants do not expect to see too much in terms of new contracts, except for companies that are actually pressured to relocate or expand, in the context in which their representatives have no clarity on how work processes will take place in the future or how their own business will evolve.

    Building activity in the office market continued almost normally during spring, even in the pandemic lockdown context, and there are no major delays for buildings due in 2020, with a potential pipeline of about 230,000 square meters, mainly already fully contracted or mostly pre-leased, according to data from Colliers International.

    The first half of the year saw a delivery of nearly 105,000 square meters in new modern office spaces, with the bulk coming online in the first quarter of the year. Two thirds of the total surface resulted from Ana Tower and the third phase of Globalworth’s Campus project.

    Besides the drop in demand as companies have to cope with uncertainties, another aspect likely to press new demand in the future should be the rise of spaces for sublease.

    This is because some companies that had relocated in recent years had also leased a large buffer space in case they continued to hire people and expand the business; now that these plans seem out of the window, this may free up quite a bit of spaces for sublease.

    Furthermore, work from home, either a few days a week on a permanent arrangement (during this state of alert), should also free up space going forward.

    No major changes have been seen in terms of rents until now, but Colliers International consultants say that we are likely to see moves.

    Over the near term, there are quite a few forces acting on the rent side: first, because tenants may not feel inclined to move, due to incurring costs, and their current landlords may not be as flexible with offering lower rents; meanwhile, than companies willing to take on new spaces (via a relocation or pure new demand) will likely lead to landlords being sensibly more generous (especially via incentives/gratuities rather than lower contractual rents). Also, there are quite a few major spaces, fully fitted, available for sublease at competitive rents.

    An important observation to make is that without the Pipera Nord submarket and class B buildings, vacancy would still be comfortably in single digit territory for class A office buildings.

    On the other hand, as things stand now, we will likely see lower demand going forward as well as pressures on rents.

    Vacancy is likely to climb towards 13-14% by year-end, with total demand for 2020 likely to cool down to a more mellow figure around 200,000 square meters, roughly half seen in 2019 and below the 300,000 square meter average seen this cycle.

    Because of time needed to negotiate deals, travel difficulties of decision-makers in international companies as well as uncertainties likely to linger into next year, 2021 may not look exceptionally good, but it could still surprise positively if the recovery quickens, with labour market indicators offering some encouraging prospects for now.

  • The modern office stock in 15 CEE countries will reach 30 mil sqm by 2021

    The largest supply of modern office space in 15 CEE countries was recorded in Warsaw, Budapest and in Prague, while the biggest increase of new supply in H1 2019 was noted in Bucharest (185,000 sqm), according to the newest report by real estate consultancy company, Colliers International.

    On a per capita basis, Bucharest’s office surface is around one third below Warsaw’s, which is also significantly below other Western European markets, so there might be room to grow.

    The Coliers report analyzes office markets in 15 CEE countries: Albania, Belarus, Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Montenegro, Poland, Romania, Serbia, Slovakia and Ukraine.

    Most modern office projects are located in the capitals of the countries, although the office market is also developing in regional cities. In the first half of 2019 in all capitals of the 15 analyzed countries tenants leased over 1.5 million sqm of modern office space.

    More and more office buildings boast of prestigious certificates, modern technological and ecological solutions and innovatively designed space. The most active tenant sectors are IT, professional services, banking and BPO/SSC.

    „Total modern office stock in 15 CEE countries in H1 2019 reached almost 27 million sqm. At that time, developers completed 707,000 sqm and 3.7 million sqm is currently under construction. The largest supply of modern office space was recorded in Warsaw, Budapest and in Prague, while the biggest increase of new supply in H1 2019 was noted in Bucharest. Second place in terms of the amount of new office space completed in the same time took Sofia, followed by Warsaw,” says Dominika Jędrak, Director of Research and Consultancy Services, Colliers International.

    Central Europe – renovation of industrial properties into modern office space is one of the market trends

    In Czechia and Slovakia in the first half of 2019, over 130,000 sqm of modern office space was commissioned in Prague and Bratislava. There is also a current market trend towards renovation of old industrial properties into modern and vibrant office spaces. One example of that can be a mixed-use project Pradiareň 1900, involving the refurbishment of the former Bratislava Thread Factory.

    Bucharest has turned into one of the most dynamic economies in the CEE region. This is closely related to the labor force, which offers a nice mix of good language skills as well as much lower costs than in Western Europe. Romania and Bucharest do have a couple of things that set it apart from other peers and even other more developed markets in Europe: a very strong IT&C community.

    „While vacancy is expected to be on the rise over the next couple of years, there are some silver linings. Bucharest still has quite a lot of stock built about a decade ago and part of it would not meet today’s qualitative/technical standards. Vacancy tends to vary quite a lot from submarket to submarket and even between projects in the same submarket. Furthermore, on a relative (per capita) basis, Bucharest’s office surface is still around one third below Warsaw’s, which is also significantly below other Western European markets, so there might still be quite a lot of room to grow”, Sebastian Dragomir, Director Office Advisory at Colliers International Romania, said.

    Warsaw is also developing very quickly, there are approximately 40 office buildings under construction with a total area of over 830,000 sqm, which will gradually fill the supply gap in the next 24 months. The largest projects include The Warsaw HUB, Mennica Legacy Tower and Varso Place – the highest building in European Union. 

    At the end of H1 2019, the total office stock in Budapest exceeded the 3.6 million sqm. The market remained landlord driven in 2019. The largest deals are usually closed by tenants active in the IT, financial and pharmaceutical sectors and by state related occupiers. The speculative office pipeline under construction till 2021 accounts to 404,000 sqm, out of which 95,000 sqm office space is expected to be handed over by the end of 2019.