Crosspoint Real Estate: The office market regains its strength. Is there still a chance for a return to pre-pandemic levels?
The total leasing volume in Q1 2022 in Bucharest amounted to nearly 65,000 sqm, similar to the same period last year, but 10,000 sqm more than in Q1 2020, according to research data from Crosspoint Real Estate. However, tenant interest remains moderate compared to the years before the COVID-19 pandemic, when the lease volume exceeded 70,000 sqm in 2018 and 80,000 sqm in 2019.
According to Google Mobility Report, the workplace attendance in Bucharest – in mid-May 2022 – was 23% lower compared to the pre-pandemic period. Although attendance has gradually risen from -62% in April 2020, it remained below the level recorded in January-February 2020. This drop comes mainly from office employees who are still working from home or choosing the hybrid model. “Because we are at the beginning of the summer holiday period, we will probably have a clearer view of how much office work has changed in September-October of this year. The transition to a flexible way of working was imminent and the pandemic only accelerated this trend”, says Ilinca Timofte, Head of Research, Crosspoint Real Estate. According to a study conducted by our company – based on a survey of 800 employees in Bucharest and major regional cities – at the end of 2019, more than 65% of Romanian employees did not have the possibility to work flexibly.
More passengers using public transport; road traffic returning to 2019 levels
According to Metrorex data, subway traffic has been on the rise since the beginning of the year, with over 12 million trips in March, only 2 million fewer than the monthly average recorded before the pandemic. As reported by Google Mobility Report, the presence of passengers in public transportation stations in Bucharest is also increasing, although still lower than the one recorded in early 2020. Furthermore, in accordance with TomTom traffic reports, the car traffic in Bucharest in May of this year exceeded, during rush hour, the levels recorded in the same period of 2019.
New trends on the office market
“As we all expected, the office market will have a different course from now on, and the most important changes compared to the pre-pandemic period are hybrid work and the adaptation of multinational companies to this new reality by reducing the office spaces they’ve occupied before, together with a shortening of the lease terms, but also the fact that the variation between demand for office space and transactions has increased by 30%. As for the building owners, they will conclude their previously established plans, by focusing on their existing projects and ongoing developments”, says Simona Urse, Associate Director, Office Agency, Crosspoint Real Estate.
Starting this year, with the end of pandemic-related restrictions after a two-year-long period that was totally different from the pre-pandemic life, other trends are emerging on the office market:
– Large occupiers have returned to the office, most of them in a hybrid setup – 2-3 days at the office, 2-3 days of work from home – a setup that will most probably become permanent.
– Employees have re-evaluated their priorities, they don’t enjoy spending longer periods of time stuck in traffic, on their way to or from work.
– Especially since the beginning of the year, the rise in demand from potential tenants has subsequently led to an increased interest from potential buyers.
– A large part of the new demand comes from relocation plans, some as a result of the current geopolitical situation.
– Shortening of lease terms from 5 years, the standard before the pandemic, to 3 years.
– Human resources departments are researching for new ways to bring employees back to the office.
– Some companies are now willing to give up their currently occupied office space, even if it’s under a running lease contract, in order to find a more suitable space for their employees.
– Rent increases – impacted by inflation and adjusted based on the HICP (Harmonized Index of Consumer Prices) – most rents in existing contracts, including service charges, have or will increase by about 5%
– If until now net effective rents were diminished during the pandemic by various landlord incentives, now those rents have started to increase through the effect of contracts.
“Profile studies show that about 45% of employees have already returned to the office, and the percentage increases from month to month, but we are certainly talking about a gradual return. It is true that about 60% of employees prefer the hybrid way of working, and the reasons are easy to understand: independence, flexibility of the work schedule, reducing the time spent in traffic. But, on the other hand, the need for a sense of belonging to a team, socialization and teamwork is very high, all of which are considerably impaired in the absence of physical contact with teammates”, explains Florina Grosu, Associate, Office Agency, Crosspoint Real Estate.