Mixed market activities
The total office space demand in Bucharest saw an increase of some 44% versus 2022, to around 400,000 sqm, surpassing the previous record of 365,000 sqm in 2019, according to the 2023 Annual Report released by Colliers. However, in terms of deliveries, 2023 marks the lowest level since 2015 and also a 42% decline compared to the average for the previous 5 years. But for good quality buildings in terms of energy efficiency, which are also quite well connected to the city’s infrastructure, the occupancy rate will continue improving, Colliers experts estimate.
Deliveries are expected to slow down
Last year saw a delivery of only 110,000 sqm in new modern office spaces in Bucharest, taking the overall stock to nearly 3.4 million sqm. The major additions were One United’s second phase of the One Cotroceni Park (34,500 sqm), the second phase of Forte Partners’ U-Center (32,500 sqm) and the second phase of Atenor’s @Expo (28,000 sqm). Two other projects below 10,000 sqm were also finalized – Strabag’s Arghezi 4 and Primavera Development’s Muse. Deliveries will become even softer as construction activity slows down and only one major project is expected in Bucharest in 2024 – AFI Loft (about 16,000 sqm) – The Bizz writes referring to the Annual Report by Colliers.
“The slowdown in deliveries was accompanied by a slowdown in new demand, down by some 6%, to 115,000 square meters. This figure is more or less in line with the yearly average seen in the past cycle. It is noteworthy that leasing deals generated by new demand made up less than 30% of total leasing deals versus 40-50% in the years before the pandemic. We would normally expect to see such a growing prevalence of renewals over new demand in mature markets, not in emerging ones like Bucharest’s,” – Victor Coșconel, Head of Leasing, Office & Industrial Agencies at Colliers
Significant changes in the market
The most significant transaction of the year involved Oracle, known as one of the largest tenants in Bucharest, which reduced its total office space by about half, i.e. 26,000 sqm. Colliers’ consultants point out that the size of some tenants can lead to significant changes, as the spaces vacated by Oracle alone add up to a quarter of a percentage point to the vacancy rate of the whole Bucharest office market.
On the other hand, the year’s biggest leasing transaction was Honeywell’s, where the company renewed its lease for 24,000 sqm without making any changes to it. In another notable case, Adobe doubled its previously occupied surface to reach 17,500 sqm.
Trends of change
One of the notable trends in the real estate market in 2023 is the preference of smaller tenants for modern Class A office space. Another notable observation relates to state-owned enterprises, which, although still limited at present, are expected to increase their demand, particularly in line with the ESG targets supported by the EU.
„Another notable deal is that of Infineon, an IT company, for a build-to-suit (BTS) project with One United on a 15-year lease. This deal is unique, as most leases are for 5-7 years, and occasionally up to 10 years. This development signals a positive shift, indicating both the growing confidence some companies have in the local market and the maturing of the office market,” – adds Victor Coșconel.
The rent-gap
Things changed quite significantly for a part of the market last year, as experts noticed a 16% increase in prime CBD asking rents, reaching 22 EUR per sqm. This type of increase was seen by good quality buildings in terms of energy efficiency, which are also quite well connected to the city’s infrastructure.
Meanwhile, older buildings or those in less attractive locations are losing tenants and therefore cannot justify higher rents, thus contributing to the significant gap between ESG-compliant and well-located offices and older buildings.
As for the vacancy rate, it nudged up a bit to 15.5%, with most of the upward move potentially caused by the Oracle transaction mentioned earlier. The top buildings have a much lower vacancy rate than the overall market average, reaching even below single digits compared to the average of around 15% for Bucharest as a whole.
Leasing demand is expected to grow
With around 3.4 million sqm of leasable areas in modern office buildings, Bucharest seems to be in a favourable position in case of a downturn in the global economy. The stock per capita is relatively low compared to Western European levels. Additionally, the city’s growth as a service centre has become more prominent in recent years. Coupled with EU directives, this trend is expected to generate substantial leasing demand in the future, particularly from government or other state-affiliated institutions.
Photo: office.one.ro
