The Office Market in the First Months of 2012

The office space market grew by 27% in the first quarter of 2012

In the first three months of 2012, there was an intense activity on the office space rental market, both compared to the first quarter of 2011 and compared to the average of all quarters in 2011. Thus, the total volume of office space requested by ESOP customers so far in 2012 amounts to 129,620 sqm, 27% more than in the first quarter of 2011, and about 40% above the average of the quarters of 2011.

“We notice a positive trend: the increase by 17% of the average area requested by medium-sized companies, from 356 sqm in Q1 2011, to 451 sqm in Q1 2012, which means that companies are starting to expand their activity and relocations to not only the desire to reduce rental costs but also the need for larger spaces “, analyzes Alexandru Petrescu, Managing Partner at ESOP Consulting.

ESOP Consulting company welcomes its clients with the largest and most diversified offer of office real estate on the real estate market in Bucharest. In the portfolio of ESOP Consulting, we have over 2,200 office buildings, of which approximately 1,500 villas and 700 office buildings.

II. What budgets do customers have in 2012

There is an increase in the volume of requests from customers who have budgets below 11 euro/sqm. Of the total amount of requests from medium-sized companies (which have between 10 and 120 employees), over 50% are for offices with rents below 11 euro/sqm, and the owners of business centers or villas for medium-sized companies must keep account of this reality.

Compared to previous years, this means a significant increase in the volume of spaces requested by customers with budgets below 11 euro/sqm. For example, the demand for office space in the segment below 11 euro / sq m in the first three months of 2012 is equal to half of the need for the entire year 2009. In fact, since 2009 and until now, the demand for space with rents under 11 euro/sqm increased continuously from the average companies, as shown in the attached chart. This cannot be said of the demand for the other rental segments (between 12 and 15 euro/sqm and over 15 euro/sqm), which have experienced decreasing or stagnant evolutions.

Declining supply, amid rising demand

The degree of the vacancy in office space for medium-sized companies is decreasing. Compared to Q1 2011, when a total area of 846,123 sqm was free, at the end of Q1 2012, the whole area was reduced to 812,050 sqm.

“One of the most important trends observed at the end of Q1 2012 is the significant decrease in the stock of villas, by 32%. At the end of Q1 2012, an area of 100,812 sqm is still available, compared to 149,505 sqm at the end of Q1 2011, which shows that in the last year, medium-sized companies have preferred to rent office space in villas “, says Alexandru Petrescu.

On the other market segment, of larger office buildings, the situation is the other way around. The stock of office spaces in business centers registered a slight increase of 2%, from 696,618 sq m in Q1 2011 to 711,238 sq m in Q1 2012, amid the contraction of the spaces occupied in such buildings.

Not everything that is listed is for rent!

Out of the total stock of offices in business centers, approximately 40% of the spaces have a poor quality of finishes, or the spaces are not recently renovated. Even so, the area of quality office space available in business centers is 4 times larger than that of office space in villas, which means that there is a much fiercer competition between business center owners than between villas owners.

FORECASTS

And this year, the managers of medium-sized companies still consider the villas more attractive, both due to lower rents and due to lower maintenance costs and more flexible contractual conditions. Villa owners have adapted more quickly to the requirements from the managers of medium-sized companies: rents below 11 euro/sqm and more flexible contractual terms.

“We estimate that the interest for villa spaces will be as high in the next period, and the owners of business centers with unoccupied spaces must take into account the budgetary limitations that companies have, and give proof of flexibility. It must take into account that a period of several months of unoccupied space is the equivalent of a lower rent of 2-3 euro/sqm rented “, declares Alexandru Petrescu, Managing Partner of ESOP Consulting. “We recommend negotiating with the customers who knock on their door and reach an agreement, instead of waiting for miracles,” adds Alexandru Petrescu.