MAIN TRENDS FOR THE MEDIUM‐SIZED COMPANIES OFFICE MARKET
Increased demand for the medium‐sized companies market in the first six months of 2012; ESOP registered in its data base an increase by 50,4% compared to S1 2011.
The office space stock remains high (782 spaces available for rent in business centers and villas in ESOP’s portfolio, totalling over 850,000 sqm), which keeps putting pressure on rent levels.
The global trading activity, which totals the transactions of all real estate companies is slightly decreasing, still dominated by relocations. In addition to the large number of companies interested in cost cuttings, increasingly more companies aim at optimizing the working conditions at the same budgets. Newly established companies or new entrants in the market have resurfaced, but only in a small percentage for now, below 5‐7% of all requests.
While, after the onset of the crisis in the fall of 2008, demand in the office market recorded, according to data from ESOP database, a progressive decrease every year, tempered by a timid increase (+2%) in the first half of 2011, the first half of 2012 brings a pleasant surprise to medium sized‐companies market.
According to the data analyzed by ESOP, the real estate consultant managing the largest portfolio of offer and request for medium‐sized companies, S1 2012 brought an increase of 50.4% compared to the same period last year, in terms of business request.
At the core of this reinvigoration we believe there were a number of positive developments during 2011 in areas such as agriculture *) (+ 11.3% in 2011 to ‐6.3% in 2010), investment *) (+63% to ‐2.1% in 2010), construction *) (+2.7% vs. ‐7.3% in 2010) and others.
(*) Source: NIS, NCP
DEMAND ‐ BY BUDGET CATEGORIES
Analysis of the requests registered within ESOP during the first half of 2012 shows that the largest share, that is 78% of the total demand, is still from the part of midsize companies with budgets of up to 11 euro/sqm/month, followed by requests with budgets between 11.1 and 15 E/sqm/month – 18% of the total demand.
TREND OF THE DEMAND BY BUDGET CATEGORIES
Despite this massive concentration of requests from the midsize companies around the below 11Euro/sqm budget, analyzing the trend of the demand in S1 2012 compared to the same period last year, it may be noticed, in addition to a significant increase in requests for the segment of up to 11 euro/mp (50.33%), an increase of 21.88% for requests with budgets varying between 11, 1 and 15 euro/sqm.
OFFER: OFFICE SPACE STOCK IS STILL HIGH
In ESOP portfolio, at the end of the first half of 2012, there are 782 buildings with office space available immediately on lease, of which 430 units are business centers (totalling 728,124sqm) and 352 villas (totalling 122,521sqm).
Of this stock, however, a large part of the premises may be considered of poor quality or location, so that the truly viable and marketable supply is lower (by approx. 30‐35%).
OFFER – BY BUDGET CATEGORIES
In terms of structuring by the categories of budget, office space supply has significant percentage differences compared to the demand, more pronounced for the business centers. Of the total supply, only 43% of the available spaces are below 11 euro/sqm (compared to the demand, which has 78% of total requests in this budget segment).
In the first half of 2012 rent level stabilized at values close to those recorded in S2 2011, with relatively few exceptions.
The average rent levels asked by the owners (listing rents) at the end of the first half of 2012 are shown in the table and graphics below:
Asking rents involve a negotiation margin, which varies depending on the area and quality of spaces. Thus, for buildings in North‐Central areas and downtown, the rent may decrease after negociations by 7 to 12%, while for other areas a decrease in rent level can vary between 15 and 20%.
Maintenance costs are another major indicator taken into consideration by companies looking for an office space, an indicator that often differentiates the two market segments ‐ business centers and villas, or it may also differentiate the buildings within the same market segment.
Maintenance costs for office space in an upper class business center vary between 3.5 and 5 euro/sqm/month, while for B and C class they vary between 2.5 and 3.5 euros/sqm/month.
Significant variations in the cost of maintenance from one building to another must be analyzed in the context of including or excluding the consumption of utilities from these values (most notably electricity and/or gas for space heating and cooling and share of common spaces).
In case of villas and small office buildings, maintenance costs vary between 1.5 and 2.5 euro/sqm/month and are paid on the basis of proportional re‐billing, based on utility bills.
SUBLETTING ERA IS SETTING, EXPANSIONS ARE REVIVING
While companies in 2008‐2010 mainly targeted restrictions and subletting of office space, starting with S2 2011 and S1 2012 companies expansions reapppered, particularly obvious in transactions within the same building.
We believe that the second half of the year will not bring significant changes with regard to the key indicators of market development.
Rents will stabilize, differing according to the levels of building quality and areas, with situational evolutions ranging from +/‐ 1% and +/‐ 5%.
The average surface traded within the entire market (large and medium companies) will remain between 1,100‐1,200sqm, and the surface for the midsize companies between 400‐500sqm.
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