During 2020–2021 to approx. 635,000 sqm of modern office space are expected to be delivered on market, increasing the Bucharest modern stock at approx. 3.9 million sq m, a step closer to a new a threshold and a more mature CEE market
According to the latest report of CBRE, 60 per cent of the total investment volume was transacted nationwide, while Bucharest attracted 40 per cent of the total volume. With almost half of the total investment volume, the office sector didn’t give up the leading position also held in H1 2018. Retail segment claimed 33 per cent from the total, while the industrial and hotels sectors attracted a combined share of 19 per cent.
In the first semester of 2019 the modern office stock surpassed the 3 mln. sqm threshold, reaching 3.1 mln. sqm, an 11 per cent increase QoQ. Since the beginning of 2019, 195,000 sqm were added to the stock. The West sub-market accounted for the largest share of modern office spaces delivered, respectively 57 per cent , while CBD, Central and Pipera sub-markets jointly accounted for 39 per cent of the new space, with 13 per cent each from the total new deliveries.
Taking into account the new operational buildings, the modern office stock changed its composition, being now formed mainly by class A office projects, while class B developments account for 48 per cent from the total analysed area.
By the end of the year, another eight buildings with a total gross leasable area (GLA) of approximately 141,000 sqm are expected to be delivered on the market, all of them being already under – construction and having a combined occupancy rate of 38 per cent. For the second half of 2019, the North submarket is expected to be the most active in terms of new deliveries as 66 per cent of the under-construction schemes are located in this sub – market. Expozitiei area, considered in recent years the new place to be and an emerging area, part of the North sub – market, will witness the delivery of two large-sized office projects: Expo Business Park developed by Portland Trust, with a total GLA of 38,300 sq, m and Ana Tower developed by Ana Holding, and a total GLA of 33,000 sqm.
The West sub–market will also continue to witness as well new deliveries by the year’s end as the owner, as River Development announced the completion of two buildings in this area: The Light, with a total GLA of 21,000 sqmand Sema Park V – Berlin, gathering 15,700 sq m, part of Sema office business park.
Even though the overwhelming majority of the office deals were concluded in Bucharest, the largest single transaction signed nationwide amounted approx. 80 per cent of the total office volume. Hence, Dedeman’s acquisition of the project named The Office and located in Cluj from NEPI Rockastle and businessman Ovidiu Sandor at an estimated value of EUR 129 mln., was the highlight in the transactional activity during the first semester of the year. Another major transaction worthy to be noted is the purchase of Piraeus Bank building, now First Bank in Victoriei Square area, part of CBD office sub – market, which was bought for EUR 20 mln. by a local investor from JC Flowers & Co.
Investment activity in the retail sector was dictated by one deal, respectively the transaction between Prime Kapital as a seller and MAS Real Estate as a buyer of a nine retail parks portfolio for an overall estimated value of EUR 113 mln., a deal concluded in the first quarter of the year.
At the end of H1 2019, the prime yields maintained a stable pace and stood at 7.00 per cent for office buildings, 6.50 per cent for shopping centres and 7.75 per cent for industrial properties.
Just like in 2018, as well in the first half of the year, Romanian investors stood out as the main real estate buyers, gathering 54 per cent from the total investment volume, followed by South – Africans, amounting 33 per cent from the total, and the Czechs, with a share of 12 per cent.
In the second half of 2019 we expect to witness the signing of several large deals which at present are under final settlements.
Taking the above into consideration, we estimate for the entire 2019 a transactional volume by up to 15 per cent higher than the one registered in 2018, surpassing the EUR 1.00 billion threshold. A similar value has not been reached since 2014.
Prime yields are expected to suffer a mild compression towards the year’s end, especially for prime office properties, given the quality of the projects that are in advanced stages of negotiation. This is especially true also considering the mandates on the market for the sale of a number of quality office portfolios that gather class A projects with low vacancy rates, blue-chip tenants and located in Bucharest’s office market hot spots.
During 2020–2021 to approx. 635,000 sqmof modern office space are expected to be delivered on market, increasing the Bucharest modern stock at approx. 3.9 mln. sq m, a step closer to a new a threshold and a more mature CEE markets. From the total forecasted to be delivered area, 46 per cent is under construction, and the rest is found at the planning phase. North and West sub–markets are under massive development as 37 per cent , and 35 per cent , respectively, of the pipeline is projected for these sub-markets.
We expect prime rents to sense a mild increase based on the pressure felt on the vacancy rate in CBD and North sub-markets. When it comes to the demand for modern office space, we expect a moderate growth, as new entries on the Romanian market, as well as start-up companies, are looking to secure attractive office space and therefore a strong position as an employer.
An increase in lettings to flexible office providers continues to be evident in the market, with several deals in progress at present and some new players appearing. From a design perspective, occupiers will continue to focus on the provision of working environments that foster collaboration, support new ways of working and help attract and retain top talent.