The office market in Bucharest has reported a total volume of renting transactions of 73,500 sqm in the third quarter of 2018, with the new demand mounting to 20,400 sqm. According to Colliers International, most of the requests came from the professional services and IT&C sectors.
„The total rented area, which also includes, besides the effective renting, renegotiated or extended contracts, has stood at about 73,500 sqm, up by 18% as against 2017. Instead, the new demand hs registered small values, 20,400 sqm, which is half compared to the level last year. Overall, there has been a mitigation of he renting activity and a balance of the office spaces in the first nine months of 2018,” said Silviu Pop, Head of Research within Colliers International Romania.
In the first 9 months of the year, most part of the demand came from companies providing professional services (26%, including co-working), followed by the IT&C sector (25%) and companies in the industrial and energy sector (19%).
In tune with Colliers’ estimates, leasing activity is softening to more normal levels following an excellent 2017 (best post-crisis year for new demand). They say the comparisons to 2017 might be misleading, as new demand still in fairly good form (for instance 1Q-3Q18 net take-up comparable with the full year results for 2015).
The same forecast states that co-working was exceptionally strong so far (20% of net take-up, 10.4% of gross takeup); ultimately, this adds to the sensation of sluggishness in the office market as this part of the new demand is not linked to employment growth. In a sign of potential issues over the medium term (potentially rent-impacting), relocations from competitive stock have increased, hitting a postcrisis (probably all-time) high for 1Q-3Q period.
Aas a positive, the market is much more balanced than 1-2 years ago in terms of both demand by activity sector, as well as locations sought after by tenants.
By local standards, the labour market is at its tightest in the post-crisis cycle, but still has a lot of slack compared to regional peers (suggesting office stock can still expand in the long run, albeit at a slower pace).
Aside from new big co-working operators (Mindspace, Spaces), 2018 saw a few notable entries (like the London Stock Exchange Group opening a service center in Bucharest).
Rrents remained broadly stable, though some submarkets displaying strong tenant demand and low vacancy (like Floreasca-Barbu Vacarescu) are seeing pressures on effective rents, while vacancy likely increased a bit from 9% mid2018 towards 10% end-3Q18 and should move more firmly in double digit territory by year-end amid cooling demand and stronger deliveries in 2H18.
After a modest stock increase in 1H18 (33,000 sqm), 3Q18 was more dynamic, with 83,000 sqm; 4Q18 is also quite busy, with over 69,000 sqm (though part of this could be pushed into 2019).
Center-West/West each received a delivery in 3Q18 and accounted together for over 70% of the new stock, with the rest in central areas.
2019 pipeline stands at well over 300,000 sqm based on developer promises, but we would expect part of this to be delayed into 2020 if pre-leases activity does not go well.