Office Stock

Over 60% of the office stock is in non-central areas

ESOP recently completed a study on the office market in non-central areas, which was presented at the REALTY 2006 event. The event, organized by Business Media Group and in its 7th edition, took place on June 20, 2006, at the World Trade Center Bucharest.

Non-central buildings are a product in development both on the Romanian market and in neighboring countries. However, a clarification is required from the beginning regarding the direction that was the basis of the material: a location, even if non-central in terms of its geographical location, can be a location with great potential for real estate developments, if the respective area has certain facilities (public transport infrastructure, parking spaces, proximity to commercial zones or homes, etc.) or the existence of specific advantages: easy access, proximity to particular objectives (airport, highway, etc.).

In terms of these aspects, the non-real estate is a segment that offers special investment opportunities, both now and in the future. Delimitation of areas in Bucharest From practical experience, ESOP has proposed to highlight the various areas in Bucharest. At the level of non-central areas, there are two structures, namely areas located in the city, and areas located on the city limits. Both categories offer viable alternatives for the office market. Bucharest – central versus non-central Total stock of offices A and B: non-central central 2005, 750,000 sqm 36% 64% 2006,920,000 sqm 37% 63% 2007 1,220,000 sqm 31% 69% Share of spaces with delivery in 2006 2007 north-central: 38% 24% non-central: 62% 76% in town: 33% 42% city limit: 29% 34%

Rent level

• center-north: 15-19 Eu / sqm
• non-central: 11-15 Eu / mp
• Trading margin 10-15%.

If in the areas located in the city, individual buildings are usually developed, the areas at its limit are suitable for larger projects and business parks. Anchor Plaza is the first class A office building developed in the western part of Bucharest, benefiting near two commercial complexes (Plaza Romania and Cora), metro station and good access to means of transport. The building has excellent access to both the North and the City Center and has numerous parking spaces. The delivery on the market for the building will be in October.

Helios Business Center is the most important office project, with delivery on the market in the eastern area, in 2006. It will bring 15,000 sq m of class B + offices, delivered in two stages Q3 in 2006 and Q3 in 2007. It offers visibility and exceptional facilities and endowments, in the conditions of a very advantageous quality/price ratio.

Interestingly, the hierarchy of criteria for choosing an office space differs, there are two main categories of companies: – Companies that need image These have as a determining criterion Location (central, usually, and to provide visibility), followed by Quality, Functionality and only in a secondary plan, Rent – Companies that need functionality and financial efficiency For these, the determining criterion is the level of Rent, with less emphasis on Quality and Location.

If the hierarchy of criteria is relatively stable for companies that need an image, it is expected that it will change over time for those with functional needs. Thus, with the extensive development of non-central areas and the emergence of several alternatives, it will become possible for these companies to choose depending on the location. Another factor influencing the relocation decision – which will manifest itself in the future for a broader range of companies – will be the fact that employees will have more and more to say about the chosen location. Currently, the consultation of employees is done only by companies with highly specialized staff, such as large corporations in the IT field.

Given that in Romania, the appetite for property is much higher than in other countries, employers will tend to take into account the options of employee-owners, with much lower mobility than employee-tenants. We believe that currently, the location has a lower weight in the decision of the companies, in the conditions of a rather low offer, but that this tends to change in terms of the increase of the competition. Therefore, office project developers need to pay more and more attention to the locations they choose, and to the facilities, they have in the medium and long term.

Non-central in three European capitals

To make a real comparison on the office market in Bucharest, we chose three European capitals, a new neighbor but with a more mature market in terms of the real estate market.

Warsaw has a total stock of class A and B offices of 2,370,000 sq m, of which 60% is located in the non-central and 40% in the central part. The level of rents rises to 17-20 Eu / sqm, and non-centrally to 12-15 Eu / sqm, with a bargaining margin of 10 to 20 percent. One of the essential factors in the development of areas is the infrastructure. In Warsaw, the infrastructure is well developed in the southern part, which accounted for 30% of supply and absorbed 40% of demand. The western area is growing, and the least developed is the southeast area. The lack of a subway is an important reason. In Budapest, until the end of 2005, most of the spaces were delivered non-centrally, and out of the total transactions made, 50% of them took place in the non-central part of the city.

The total stock of offices is 1,550,000 sq m, and the share is 52% in central and 48% in non-central. The vacancy rate is increasing, with a percentage of 12.8% in the central and in the non-central 10.5%. About the level of rents, we can see that they are lower than in Warsaw, namely: 14-16 Eu / sqm in central and 10-13 Eu / sqm in non-central.

The office market in Prague had an exciting evolution of the areas. The share is 43% central and 57% non-central, with a total stock of 1,750,000 sqm. Of the entire stock, approximately 30-35% are renovated buildings. The level of rents in Prague for class A offices in the central office is from 16 to 18 Eu / sqm and from 13 to 15 Eu / sqm in non-central areas. Rents in the central areas for class B offices are from 10 to 14 Eu / sqm, and in non-central areas, they vary from 8 to 11 Eu / sqm, with a bargaining margin of 10-20%. The vacancy rate is five percent lower in non-central areas, 13.5%, compared to 13% in central areas.