The office space market is continuously evolving. The completion of several projects is announced for the period 2007-2009. From the estimates made by ESOP, the stock of office space will exceed 1.7 million sqm. At this moment, the total stock of spaces is 1.2 million sq m, and by the end of 2008, buildings will be developed to amount to over 400,000 sq m.
The SME segment In the last 6 months, a new trend has become visible on this market; so if until now the preferred spaces of SMEs were those in villas, today more and more such companies want to rent spaces in business centers. 75% of SMEs intend to relocate to BC, but due to an acute lack of available space, villas or apartments in the villa are often the only possible alternative.
The number of villas – compared to the market demand – is not enough, which is why the prices of these spaces have experienced, since the end of 2006, a substantial increase, which is still manifested today. In conclusion, 2007 represents the year with the lowest supply level for the SME segment, compared to the demand on this market. The requests for office space for SMEs target areas up to 1000 sqm, the most sought after being those between 150 sqm and 600 sqm, which will be available in the next 2-4 months. Rent level and trends For the surfaces between 150-300 sqm – villas and apartments in the villa remain the safest alternative in the next 6 months.
As for the business centers, the new ones are still few, and the already completed ones are released occasionally, usually their availability being known only 1-3 months before. Areas smaller than 500 sqm, located in office buildings positioned centrally or semi-centrally, are typically rented in about a month, so before the actual relocation of the old tenant.
Corporate Offer Segment
The primary trend that can be noticed on the market of class A office buildings is that the level of rents for buildings in the central and northern areas, with areas of over 5000 sqm, began to increase from Q1-2007, amid limited supply and prices. The class A and B + buildings in the secondary areas, which have a significant share in the stock that will be delivered in the next period, will offer an alternative to companies based in class B buildings in the main areas, providing better and comparable or even lower rents. The degree of vacancy of these new buildings could increase, in the first phase, due to the delivery at the same time of several large projects. Still, during 2008 and 2009, we predict that the market will absorb the offer, with the downward trend of rents on these categories of offers, compared to Q1-Q2 2007.
Heritage villas in the main areas will be in high demand, and rents will be on an upward trend. In contrast, villas in the secondary areas will have stronger competition from the new office buildings now under construction in the secondary areas. Demand registered an upward trend in the first two quarters of 2007. Demand was fueled by companies that expanded or relocated, and to a lesser extent, by new entrants, which usually have rented areas up to 500 sqm. For spaces smaller than 2500 sqm, the rental contracts are signed for periods of 3-5 years. For spaces more significant than 2500 sqm, the contracts must usually be signed for at least 5 years. The maintenance expenses are 3-3.5 E / sqm. Most of the owners opt for the “open book” system, through which, after the first contractual year, regularizations of the costs of utilities and property management services are made.
Forecasts on the development of the city (referring to the office space market) The Western Area has known a constant development lately, being announced here the launch of large projects. Here is SEMA PARC – the largest integrated project in the city center, Cotroceni Park, mainly a retail project that will include the first IMAX cinema in Romania. The Plaza Centers project (in the former Casa Radio building) will also be a mixed-function product positioned in the western area. SEMA PARC – The first phase of offices with a total area of over 42,000 sqm, divided into 2 office buildings. SEMA PARC brings to market a new concept: Integrative Vision. It is one of the most innovative and well-planned projects. It offers not only class A office space (respecting international standards in this respect) but also the chance to provide tenants a pleasant working environment. There are, therefore, multiple dining possibilities (restaurants will be present in the business park area and the retail sector), sports and relaxation centers, and numerous shops.
Another generating element of added value, especially for multinational companies, will be the 4-star hotel, provided with conference rooms and other facilities for business people. Currently, the last 8,000 sqm are available. The spaces are located on two levels, one with surfaces of 2350 sqm and 2600 sqm and another level with surfaces of 1000 sqm. The spaces are equipped with a floating floor, central air conditioning system, fed by 4 pipes, with fresh air supply, underground parking, 1 parking space being offered every 55 sqm rented. The Western area concentrates about 30% of the total stock of offices that will be delivered by 2009, while almost 50% of the spaces are expected to be delivered in the northern area. The pipeline represents a perimeter in which it is being built massively. The developers are directly involved in solving the problems related to the infrastructure to facilitate access in this area. Barbu Vacarescu and Expozitiei Boulevards are other northern locations where we expect significant increases in the next 3-5 years.
The accession to the European Union generated a dynamization of the residential rental market, which had proved in 2006 a relatively constant segment, with small variations and an exceptionally well defined profile of clients. Therefore, in the last 6 months the demand increased by approximately 40%, fact generated by the arrival of a large number of investors, attracted by the development possibilities and by the superior yields obtained (the yields in Romania being by about 1.5% higher, and the market is far from saturated in all its segments). Demand In the first two quarters of this year among the most sought after luxury homes continued to be spaces with 2 and 3 bedrooms, located in central and northern areas that benefit from the proximity of renowned educational institutions such as the American School (located in the Pipera area), or the French School (located in the Romanian area).
We anticipate a significant change that will produce a sharp migration of demand to the North by relocating the famous British School to Pipera. This will delimit two categories of consumers: those who prefer traditional central locations very well served by public transport and with many facilities: kindergartens, hospitals, shopping centers (Piata Romana-Bulevardul Dacia, Dorobanti, Kiseleff) or people who opt for North due to the schools with teaching in languages of international circulation, to the numerous green spaces, lakes, and parks. In the proportion of 70% of the total demand, luxury apartments were requested. In comparison, the remaining 30% was represented by the demand for villas.
The main clients in this segment were foreign nationals and multinational companies (approximately 85% of total demand). In comparison, embassies that rent spaces for the diplomatic corps accounted for 15% of total demand. Offer For this year, the delivery of several buildings in the already established locations is expected: Herastrau, Primaverii, Aviatorilor, Baneasa, Dorobanti, Floreasca. The offer is diversified because we are dealing with two types of projects: those delivered for sale, purchased for investment purposes and spaces specially developed to be rented. The favorite homes are the spacious ones, with a modern and sophisticated design, which offers an exceptional panorama, a lot of peace, and perhaps most importantly, a high degree of security for the tenants.
The facilities offered by the developers must be diversified and of clearly superior quality: swimming pools, sauna, maintenance rooms, golf courses, beautifully arranged gardens, and permanent security service. The level of rent and trends Bucharest climbed 36 positions in the ranking of the most expensive cities in the world, reaching 78th place in a ranking of 143 cities, according to a study conducted by the British consulting firm Mercer Human Resource Consulting. Therefore, the level of rents is still maintained at high values, supported by the increase in demand in the last period. The 2-bedroom apartments seem to enjoy the highest constant in terms of rent, while the 3-bedroom apartments have increased by 5%.
On the residential rental market, the prices vary depending on: the surface and the number of rooms, the location, the finishes, and the facilities offered. Type of space Rent level (Euro/month) 2-room apartments (1 bedroom) 1,500-1,800 3-room apartments (2 bedrooms) 2,000-2,500 4-room apartments (3 bedrooms) 2,500-3,800 Villas with 3-4 rooms 2,500- 4,000 Villas with more than 4 rooms 3,500-5,000 For the next months we expect increases in the level of rents between 3% and 5%, the demand being represented both by existing customers who want to change their home and by the new wave of investors or companies with foreign capital that will enter the local market.
The residential sales market is booming, managing to attract a large number of developers willing to invest in new homes since the beginning of 2007. We can already talk about segmentation, depending on the location and consumers. It announces many different projects built in locations already associated with a specific buyer profile. In the first months of this year, we estimate that approximately 1,500 housing units were sold, the most dynamic pace of demand being registered on the market of apartments for middle and middle-class plus.
Residential spaces for sale can be grouped into 3 types of offers, which we will detail below: luxury housing market; the prices of luxury apartments and villas have undergone small variations, this segment being currently the most balanced on this market. These homes are addressed to the top class with incomes of over 2500 EUR / person, ages between 30 and 55 who hold management positions or have their own business.
The preferred areas are: Primaverii, Aviatorilor, Kisseleff, Dorobanti, Floreasca, Herastrau, Cotroceni, and the buildings usually have small dimensions, few apartments per floor and generous living areas (150,250 sqm). The architecture of the building, the quality of the finishes, the high degree of safety, and the underground parking are essential conditions. The budget required for the purchase of such a home varies between 2500 – 5000 EUR / sqm.
Price level depending on the area Primaverii –3000 – 4000 EUR / sqm built Aviatorilor – 3000 – 4000 EUR / sqm built Arc de Triomphe – Kisselef – 3000 – 4000 EUR / sqm built Herastrau 2500 – 3500 EUR Dorobanti – Floreasca – 2500 – 3000 EUR / sqm built Domains – 2000 – 2500 EUR / sqm built Cotroceni – Mariott – 2000- 2500 EUR / sqm built.
For luxury properties located in villa type projects or low-rise buildings, we estimate that prices will increase slightly, by 5-10%, in the coming months, due to the large number of customers interested in purchasing properties for investment purposes. The middle-class housing market plus The offer on this market segment can be delimited in two categories: condominiums (sets of several blocks, with a shared yard, designed as privileged areas and equipped with spaces for recreation, playgrounds for children, as well as and trade and service spaces) and villa type blocks. The latter has an increased degree of attractiveness due to the feeling of intimacy they give and the relatively short completion times (about 1 year). With a layout of Gf + 4/5 floors and 2 maximum 6 apartments per level, the villa type blocks are developed in house areas, with wide streets and a lot of vegetation. For people interested in purchasing an apartment in a villa type block, a key factor in making the decision is accessibility; in other words, the possibility to easily connect to various means of public transport.
As a result of this fact, lately, the central and semi-central areas have become more and more sought after, such as Cotroceni, 13 Septembrie, Drumul Sarii, Unirii – Calarasi, Unirii – Mall Vitan, Timpuri Noi, Pache Protopopescu. These projects offer small and medium living areas (60-120 sqm), outdoor or underground parking spaces, and the proximity of green spaces.
The representatives of the middle class plus are very well informed consumers, they buy quality products, and they have increased mobility. Their incomes are between 1000-2000 EUR / person, which allows them to look at the new home as an investment taking into account the option of renting or reselling the respective space. The sale price for the houses on the middle segment plus varies between 1500 and 2500 EUR / sqm: Baneasa – Aviation: 1800 – 2500 EUR / sqm Unirii Alba Iulia- 1600 – 2000 EUR / sqm Unirii Vitan Mall – 1600 – 2000 EUR / sqm 13 September – Marriott – 1600 – 2000 EUR / sqm The most common method of payment on this segment is to pay: 25-30% on pre-contract and then intermediate installments (for example 20% at the end of the pre-contract, 20% at the end of the structure resistance, 25% at building closure and 10% at delivery). There is also the option to buy with the help of a mortgage, in which case the price will increase by 5 10%.
For the next period, we estimate that the prices will increase by 10-15% because the offsets are insufficient, and the available lands, existing less and less inside the city, will be even more expensive. The middle-class housing market Housing for the middle class will be an alternative to the residential spaces in the old blocks of flats, offering a different concept and a modern way of life.
In general, here we are talking about large projects that offer facilities such as kindergarten, minimarket, mini park and apartments with areas of 50-100 sqm. The quality finishes and the possibility of dividing the houses according to the buyers’ needs will contribute to the attractiveness of these products. The developers will exploit the potential of the semi-central areas (Militari, Drumul Taberei, Titan, Mihai Bravu, Nicolae Grigorescu) but also that of the neighboring areas (Berceni, Prelungirea Ghencea, Vitan, Colentina). The south and east of Bucharest have become increasingly attractive due to lower land prices and urban flexibility, allowing investors to promote competitive prices.
Buyers of this type of housing work in the private sector, or in state institutions, have reached financial stability and are between 25 and 45 years old. What is defining for this category is first of all the price and the method of payment, most clients buying with a mortgage. Another key point is the location, which must have an excellent connection to public transport. The sale price of the apartments intended for the population with average incomes is between 1,000 and 1,500 euros/sqm, depending on the area, the sales volume, and the construction work stage.
The demand for this type of housing will remain high, the development of this market segment being favored by mortgage loans, and the increase of the population’s income. We estimate that in the coming months, the prices of projects for the average people will register the most substantial increase, between 15-20%.