The Effects of the Economic Crisis

What types of office buildings are likely to be left unoccupied in 2009?

The office market is also feeling the effects of the economic crisis. The year 2009 is the first after many years in which the supply becomes more than the demand. Many of the recently completed buildings are not yet rented, while various spaces are also gradually becoming available in existing buildings.

These aspects have determined the reduction of rents for office spaces, and also the increase in their period of vacancy (until finding a tenant). If in the past, under the conditions of a rent “in the market” by the landlord, depending on the location, type of space and facilities offered, the average time required to find a tenant varies between 1 and 3 months, for spaces in central areas, and between 2-4 months for the spaces located in less central areas, in 2009 there will be a higher competition between spaces, and therefore the increase of these periods by 1-3 months compared to the previous period. Some buildings may remain unoccupied for much more extended periods.

Buildings that will not adjust their rent according to the current reality

Whether it is located in an office building or villa space, the essential condition for an office space to be rented within a reasonable time in the current market conditions is to reduce the rent level according to the new market situation and the possibilities of potential-tenant companies in that location. Anyone who ignores this need and can not psychologically exceed the comparison with the level recorded the previous year is exposed to a significant risk: that potential tenants choose other spaces.

“For those who are open to making such an adaptation, the justified question of course arises: what is the right price at this time for the building, location, and quality. The answer will be found by the owners through a better observation of the evolution of the promotion process, knowledge of the competition in the area and beyond, and through a close relationship with the real estate company/company that promotes the space, by listening to the observations of various companies. space, and periodic reassessment of the rent level, if the desired results do not appear.” (Mirela Raicu, ESOP Partner)

Buildings with little modular spaces

Some of the office buildings built during the boom did not take into account the fact that it will not last indefinitely. Thus, the spaces have been configured, aiming only at a logic of full or large area rental. Other spaces, even if theoretically allow the division into smaller modules, are not promoted in this way by the owners because it is considered that such rentals involve a more considerable effort both initially and later, management.

«This aspect is not unfounded, but we believe that it should always be considered together with the great advantage offered by the rentals of smaller area modules: it diminishes the initial vacancy risk, and in time, during the contractual period, offers greater financial stability to the owner compared to dependence on a single tenant). Owners are rarely aware that the demands for smaller spaces between 100-700 sqm are always more numerous than those for larger areas, 700-1500 and above. In conditions of crisis, we believe that the strategy of waiting for the big and ideal scientist is quite a risky one, and we do not recommend it. »(Mirela Raicu, ESOP Partner)

Top office buildings of the period 2000 – 2005 (former “Class A”, in the local sense)

The buildings considered a few years ago the equivalent of class A on the local market, or anyway, of the upper class of office space, face after a few years a fierce competition with new spaces, which brought new standards of quality and comfort to tenants. Many of them benefit in the past from the presence of major companies as tenants. In large areas, they tend to have the same expectations in terms of tenant quality and today.

Also, in terms of rental areas, which, if in the past, were large, so it should be today. Office buildings are part of an evolutionary cycle. We believe that each of them has the chance to make the best use of their potential through a reassessment at certain time intervals of the positioning on the market, of the type of companies possible to attract at that time, the type of area, and rent practiced. We believe that such strategy revaluations can give vitality to the property and optimize the overall costs primarily by eliminating the long periods of vacancy caused by pursuing the type of unrealistic rent to attract. Unfortunately, many such owners currently operate the revaluation of the promotion strategy only after many months of vacancy, which is a considerable financial loss.

Office spaces in areas with poor access to transportation

If location is, traditionally speaking, the most crucial criterion in real estate, access to transportation, and especially to the subway, is often perhaps the most significant attribute of a location’s qualification. In the conditions of a market that offers alternatives, the tenants will tend to choose the locations that provide such facilities. It is a delicate matter, because if in most previous cases, the owner can influence these factors, here it is almost impossible to intervene. Perhaps an exception to this aspect is the Pipera area, where the owners’ approach to contracting minibusses to provide transport to the Pipera metro station, has led to a significant improvement in the situation and discomfort of tenants.

«Solutions to reduce the risk in areas with poorer access to means of transport still exist: increasing the quality of space, providing certain facilities in addition to other buildings (more parking spaces, included in the price, allowing a more pronounced branding of the building, if it is of interest for a certain tenant, etc.). And of course, last but not least, the price level is adjusted to offer a financial advantage over the less deficient locations. » (Mirela Raicu, ESOP Partner)

Villas for rent with non-functional spaces

The villas are not protected from the risk of vacancy either. If we look at their evolution in the last 6 months, we could even consider that they are more exposed. Within them, the villas with rigid structure, and less functional partitions, such as a wagon or semi-detached type rooms are the least sought after.

Instead, newly built villas, which went on an open space structure, or interwar villas, with the classic central hall structure and spacious rooms arranged radially sometimes communicating with each other through sliding doors are considered efficient, and therefore desirable. For villas with non-functional spaces, it is recommended to review the possibilities of opening the spaces, with architects and builders approved in this regard. We believe that the investment effort can be justified from a long-term perspective. If this is not possible, the rent level remains almost the only motivational resort for attracting tenants.