CBRE: Defrosting signs for the Bucharest office market, in perfect sync with spring in full swing

• The Office leasing activity grew with 44% more and the take-up (total transactions excluding renewal/renegotiation) is with 53% higher, both compared with the values registered in Q1 2021
• The 2022 new supply is already three quarters occupied and the total area of the new spaces is 2.5 times higher than the one delivered in Q1 2021
• Office properties continue to generate the largest investment volume, having 78% from the total transacted sum

At the end of the first quarter of 2022, the Bucharest modern office stock reached 3.27 mln. sq m after the delivery of three new buildings with a combined gross leasable area (GLA) of 73,500 sq m.  From the total new supply, the Center-West sub-market claimed the largest share, respectively 43% with Sema Park II – Oslo & London office building developed by River Development. Together with Forte Partner’s newest office project Tandem and the first phase of @Expo developed by Atenor Group, the three new buildings have an overall occupancy rate over 70% at the end of Q1.

The Center-West sub-market is shaping up as the performer of the year

By the end of 2022, circa 66,000 sq m in another three office buildings will be added to modern stock. After it registered the largest share of the Q1 new supply, the Center-West sub-market will also be the largest receiver of the future new supply with the overwhelming majority (89%). The area will expand its office stock with the second phases of two well performing projects, respectively One Cotroceni developed by One United and AFI Tech Park developed by AFI Europe.

Another approx. 94,000 sq m are forecasted to be added at the capital city’s modern office stock by the end of next year, when 5 new office buildings will be delivered among which the second phase of U-Center Campus developed by Forte Partners, Equilibrium – Building B developed by Skanska, Muse Project developed by ACMS Primavera and the second phase of @Expo developed by Atenor Group

Bucharest almost doubled its total leasing activity in a year-to-year comparison

Office leasing activity in Bucharest was quite animated during the first three months of 2022, reaching at 60,400 sq m, with 44% more compared with the first quarter of the previous year. Take-up (total transactions excluding renewal/renegotiation) represented 75% of the total leasing activity (TLA), with 53% higher compared with the one from Q1 2021, signaling a defrost of expansion plans, with companies pursuing new spaces and taking concrete actions in securing new office spaces.

A major transaction representing both new demand and new entry on the Romanian market was signed by the professionals from online travel booking and associated services, namely Booking Holdings, which secured 9,000 sq m in the first phase of U-Center Campus developed by Forte Partners and delivered last year, transaction assisted by CBRE Romania who consolidated its leadership of the office market, with a 37% share at the end of Q1 2022.

“The year-on-year growth of leasing transactions shows a continuation of the rebound in activity. Large tenants want to expand and relocate, but the biggest issue we are facing is the limited new supply. In the absence of new building permits, tenants need to make quicker decisions or risk running feeling more pressure. On top of the limited supply, we anticipate a rent level increase driven by construction costs escalation” comments Tudor Ionescu, Head of A&T Services Office of CBRE Romania

Pre-leases represented only 20% from the take-up, the market still having the possibility to accommodate new demand immediately, but this might prove to be challenging on the short term with the 2022 new supply already three quarters occupied. The largest pre-lease deal was concluded by the iGaming software supplier, EveryMatrix which leased 7,500 sq m in Arghezi 4 project developed by Strabag in the Center office sub-market, Universitatii Square area.

Computers & Hi-Tech companies are the leading source of demand with 40% of the total leased area in the first three months of 2021, followed by Professional and Consumer Services & Leisure sectors which claimed 26% and 18% from the transacted area.

At the end of Q1, Bucharest modern office stock recorded a vacancy rate of 13.9%, however, class A office projects register a smaller vacancy rate of 11.6%.

Office properties remain the most interesting investment assets on the local market

Not surprising anymore, office properties continue to generate the largest investment volume, having 78% from the total transacted sum in the first three months of 2022. The largest deal of the first quarter of 2022 represented 48% of the total investment volume and refers to the acquisition of the office building Record Park in Cluj-Napoca by the Belgians from AYA Properties from Speedwell for an estimated amount a bit over EUR 30.0 mln.

Overall, in Q1 2022, on Romania’s investment market were concluded transactions with a total volume of EUR 68.04 mln., with 31 % less compared with the same period from 2021. The investors managed to seal four deals, of which three were concluded in with properties located in Bucharest, although the only transaction made in a main regional city, respectively Cluj-Napoca concentrated 48% of the total investment value registered in this quarter

“We are witnessing a continuous flow of deals in the market which gives good balance, and the pipeline for Q2 is set to confirm this stability, especially as investors look to hedge against the rise of inflation. At the beginning of the year, prime yields maintained at the same level from the last quarter of the previous year, respectively at 7.00% for retail market, 7.25% for the industrial market, and 6.75% for the office market which is 2pp higher than the average on this segment of the CEE capital cities” adds Mihai Pătrulescu, Head of Investment Properties of CBRE Romania

The source of capital brought on the Romanian market in the first quarter of the year was exclusively foreign, the largest share coming from Belgium – 48%, followed by Turkey and Hungary with percentages of 22% each from total volume and Cyprus with 8%.