What conditions are currently awaiting tenants in the CEE region? CBRE report offers comparisons in terms of new construction and occupancy in office properties.
Prague, Brno and Ostrava – projects under construction
The Prague office market is 3.73 million m2 of which only 57,000 m2 was newly completed last year. 15 projects are currently under construction with a total of 73,000 m2 to be completed this year – 30% is already pre-let. Last year’s 23% year-on-year increase in leasing activity is expected to slow down in 2022. According to Property Forum, CBRE reports a lack of premium projects on the market that can lead to rental growth. On the other hand, the Prague office market is gradually becoming a tenant’s market, so landlords are increasingly offering various incentives such as rent holidays or higher allowances for equipment in case of extending existing contracts.
Brno became the second-largest market, thanks to the presence of several IT companies and shared service centres. The main reason for this strong presence of technology companies is Brno’s universities, which attract local and international students and create a highly-skilled but still affordable workforce. At the moment, another 66,600 m2 is under construction in addition to the approximately 640,000 m2. While the vacancy rate increased slightly to 11.8% last year rents have been rising over the past two years. Premium rents are currently between €15 and €16 per m2 per month. – according to CBRE.
The total office space in Ostrava amounts to 219,100 m2, with a single project currently under construction with 20,600 m2 of lettable space. Leasing activity last year was comparable to the previous year and the vacancy rate reached 5.9%. There are 13,000 m2 of vacant offices available for immediate occupation.
Bratislava – IT companies followed by the public sector
Last year the Bratislava market grew by 63,300 m2 of office space, an increase of 3.9% year-on-year. In the past year, a total of 240,000 m2 of leased space represents a year-on-year increase of 34%. Almost a quarter of the new tenants came from the IT segment. Surprisingly, the public sector came in second place with 46,300 m2 of leased space: 19.37%, a doubling compared to 2020 – according to CBRE report.
Six new projects are currently under construction with a total of 138,000 m2 of space for lease. 25,000 m2 is due to be completed this year and 113,000 m2 next year. There is currently around 233,000 m2 of vacant office space on the market, which corresponds to a vacancy rate of 11.70%. Experts expect demand to remain strong and the vacancy rate to gradually decline towards 9%, also due to the postponing of some projects to 2023.
Warsaw – leasing activity has still not reached pre-recession levels
Last year 324,600 m2 of new offices were completed in the Polish capital, the most since 2016. At the same time, there was a recovery in demand, although leasing activity has still not reached pre-recession levels. A total of 646,500 m2 was leased, up 6% year-on-year. On the other hand, the large number of new completions – even with 70% of the offices pre-leased – caused an increase in vacancy. A total of 778,400 m2 of office space remains vacant, which corresponds to a vacancy rate of 12.66%.
However, the pace of new construction will slow down significantly in the coming years. This fact, combined with rising demand, will cause vacancy rates to gradually start to fall, by up to 4% points over the next three years. In addition, the various incentives for tenants from landlords, which have been the order of the day so far, will be fading – as CBRE experts forecast
Budapest – recovering from the covid crisis
Last year, the Budapest market recorded the lowest volume of newly completed offices since 2013 – a total of 44,500 m2, down 81% year-on-year. There were only two buildings completed during the first half of the year (Evosoft HQ and BudaPart City).
On the other hand, there were still reverberations of the covid crisis. Several projects have been postponed to this year, so the current forecast is for 302,600 m2 of new office space to be completed. This would be the second-best result since 2009.
Leasing activity reached 365,800 m2 last year, up 9%. The main drivers of demand were companies in the technology and telecoms sectors, as well as manufacturing and energy. The vacancy rate stabilised at 9.2% last year (after a significant increase in 2020). With several new projects scheduled for completion and moderate occupier demand, CBRE expects vacancy rates to rise further this year – it could reach 11-12% by the end of 2023.
While no significant fluctuations in rents are forecasted this year, incentives for potential tenants will start to appear to an increased extent.