Office market for SMEs case studies and investment opportunities
The real estate company ESOP recently completed a study on Office Investment Opportunities for SMEs, a study that has the merit of addressing an entirely new topic and on which there have been no real estate analysis and statistics so far.
It was communicated publicly during the Romanian Real Estate Opportunities conference, which took place on April 14, 2006, at JW Marriot, organized by Business Media Group.
- SMEsdynamic companies with up to 2500 employees SMEs are perhaps the most dynamic and adaptable form of organizing a business; they have several employees between 10 and 249 people and a turnover of up to 8 million Euros. This information provides us with a first benchmark regarding the office space needs of SMEs in general, namely between 100 and 2500 sqm, considering a standard ratio of 10 sqm/employee. On the territory of the European Union, SMEs represent 99% of the number of approx. 18 million companies. They concentrate 69% of the workforce and account for 55% of the Union’s turnover. In Romania, SMEs provide over 53% of jobs and contribute over 40% to gross domestic product. (GDP) SMEs are the source of 50% of the demands on the office market. Referring to the number of employees involved in various types of companies, we find that 52% of them are found in the small and medium enterprises sector, with a higher concentration on the segment of medium-sized companies, i.e., between 50 and 249 employees (22%).
- OFFICE OFFER
Supply of office space In the period 2002-2006, the stock of office space delivered on the market registered annual increases between 12 and 60%, representing a rather low dynamics compared to the demand. The year 2006 amounts to a total stock of office space estimated at 900,000 sq m, with the following distribution by types of buildings: In 2006, the imbalance between demand and insufficient supply is maintained. Real estate products on the 8-11 Eu / sqm segment proved to be attractive and absorbed very quickly by the market, the vacancy rate on this segment being approx. 3-5%, while on the segment 12-15 Eu / sqm, it was 7-8.5% (perhaps because this category has the largest share, namely 44% of the total stock of offices ).
- OFFICES DEMAND
The share of applications in 2005 according to the field of activity The most dynamic sector was that of IT, Software and Telecom companies, which represented approx. 28% of the volume of applications. Professional services have advanced by approx. 7% financial services (19% compared to 12%), closely followed by Media & Marketing, with a share of approx. 14% of total applications. Share of demand by area In 2005, extremes dominated the demand structure. Thus, the requests for areas of 100-500 sqm represented 53%, and those for spaces over 1000 sqm were approx. 27%. It should be noted that a large part of the demand for spaces over 1000 sqm targeted the rental segment between 8-11 Eu / sqm.
Budgets of SMEs looking for 100-500 sqm
According to the ESOP study, the budgets available to SMEs looking for areas of 100-500 sqm are 56% between 8-11 E / sqm. These are mainly companies in the first or second stage of development. They want either to make the transition from space located in the block or set up the company in a decent space but with lower rent and implicitly with a lower financial risk. Only a small number of SMEs choose the option of rented spaces of 16-20 Eu / sqm, namely 9%, mainly because they try to minimize financial risks. A rent of 16-20 Eu is evaluated as presenting a reasonably high risk. At an overview of the market, it can be seen that the most requested office spaces are, on the one hand, the class A type, where demand comes mainly from multinational companies. The vacancy rate is 2-3%; on the other hand, office buildings with a rent level of 8-11 E / sqm, where the demand comes from SMEs.
- Demand/supply ratio
According to the ESOP study, most SMEs want to be based in an office building, but only 33% of them succeed. Thus, many companies are forced to consider the alternative of spaces in villas. We can say that there are 2 essential reasons why villas prevail for certain companies today: 1. due to lower costs and smaller areas 2. because they are well-positioned in the city, in central areas or relatively central, and can provide some image representation. We believe that the development of office buildings in semi-central zones, resulting in spaces for advantageous rents, will attract some of the traditional clients of the villas (those from point 1 mentioned above). However, there will still be companies that will prefer the privacy and the distinctive central positioning of the villas and the image they offer.
- Investment opportunities
Office buildings of 1000-5000 sqm. Estimated costs: Land: 300-1000 E / sqm Construction: 400-600 E / sqm built Currently, medium-sized buildings are suitable for SMEs. Still, in the long run, we believe that business parks will be interesting and will attract this market segment.
And this is because, in the conditions of reducing the deficit of office spaces, the owners will have to diversify and adapt their buildings and their rental policy to minimize the periods of vacancy. Villas of 200-600 sqm: Estimated costs: Land: 500-1000 E / sqm New construction: 400-500 E / sqm Renovated building: 150-250 E / sqm – the price of renovation and consolidation Areas preferred by SMEs Central and northern area: Unirii, University, Rosetti, Romana, Barbu Vacarescu, Floreasca, Arc de Triomphe, Domenii, Baneasa Bridge, Dimitrie Pompei, etc. center-west area: Cotroceni, Grozavesti, Semanatoarea, September 13 – Marriott developing areas: Pta Muncii, Pta Iancului, Pache Protopopescu, Semi-central zones – the next step in the development of the real estate market Starting with 2004, on its market observed a visible expansion of office buildings to semi-central areas.
Around some pioneering projects, initiated in the last 3-5 years, in areas such as Pipera or Grozavesti, areas that enjoy the existence of the subway and an excellent connection to the city center – significant investments in office buildings were concentrated. In the Grozavesti area, over 20,000 sqm were delivered until 2004, and in 2005 and the beginning of 2006, over 25,000 sqm. This development was based on the growing demand for class B and C spaces, on the one hand, and investor confidence in the rise of the middle market segment, on the other hand. ESOP believes that the semi-central areas represent the next step in the development of the real estate market, in the conditions in which the central areas are becoming more and more crowded, with less and less expensive lands. Insufficient parking spaces become both an inconvenience for companies and a real urban problem. Pepper and Seeder are just the beginning. We are convinced that, like them, other semi-central areas will develop over time.
“We have noticed the potential of SMEs since 4 years ago, since the launch of the company,” said Alexandru Petrescu, Managing Partner at ESOP. We have offered a dedicated real estate consulting solution targeting this market sector. We will continue this because the office space market for SMEs is an attractive and dynamic segment, which can become an engine of economic growth by developing Romanian companies and attracting various representatives of international companies”.