The stock of modern office spaces in Bucharest reached nearly 2.7 million square meters last year, up 12% compared to the previous year. An additional 700,000 square meters could be delivered over the next two years, which means a 25% increase in the current office stock, which will increase competition for attracting new tenants. The tenants will thus be in a position of strength in negotiations, and vacancy is expected to climb upwards to 12%, maybe even towards 13%, by year-end.
Over 365,000 square meters were rented in 2019, up c.12% compared to the previous year, representing expansions of existing leases, new tenants entering the Romanian market and relocations from the stock of modern buildings. At the same time, lease agreements for 144,000 square meters were signed for office spaces to be delivered in 2020 or in subsequent years.
Outside Bucharest, projects totaling 94,000 square meters were delivered in 2019, three quarters being buildings built in Cluj-Napoca (37,000 sqm) and in Timisoara (35,000 sqm), followed by Brasov (15,000 sqm) and Iași (7,000 sqm). This year the stock of office space is estimated to increase by 150,000 square meters in these four cities representing major office hubs.
2020 is set to be a good year for the Bucharest office market, with Colliers consultants predicting demand for around 320,000 square meters, of which 120,000 square meters net office space. As in previous years, IT and financial services companies will be the main drivers of demand in 2020.
”The wave of deliveries from 2019 is reduced this year to 200,000 square meters, but with a spectacular return in 2021, when developers anticipate a potential of around 500,000 square meters, a new historical record. Thus, competition is on the rise between developers, but with the owners of existing modern buildings, which lost via relocations, just last year, tenants occupying 140,000 square meters. The tenants will be the ones who will enjoy opportunities, because Bucharest is starting to become a tenant market for office buildings. There will be increased competition for attracting new tenants, including from older buildings, some in very good locations, but which were built by inexperienced developers or which have not been investing in technical upgrades. The vacancy rate could reach 12-13%, up from 10.5% in 2019”, explains Sebastian Dragomir, Partner & Head of Office Advisory Colliers.
From the landlord’s perspective, this normalization of activity is coming at a moment when deliveries are slowing down as well, with 2020 having some 200,000 sqm in new GLA planned; 2021 is looking more crowded, with around half a million sqm in new leasable areas promised by developers. Given the realities of the market, Colliers consultants would expect that a significant amount of this pipeline for 2021 to be pushed back, as not all developers may score a major anchor tenant.
Investments in office buildings in Romania have reached an increased degree of maturity, and quality is a key aspect amid increased competition. Real estate developers pay more attention to the environment by developing efficient and sustainable projects, with "green" certifications. With a history of almost four years, the WELL Building standard complements these certifications and draws attention from the impact of the built environment to the employee's health. In Romania, this phenomenon is in its infancy, and Colliers International is the first real estate consulting company with a team of WELL specialists; the company obtained WELL pre-certification for buildings 2 and 3 of the Campus 6 project, developed by Skanska.
Launched in 2014 in the US by the International WELL Building Institute, the WELL Building standard is the first system that ensures a healthy interaction between occupants of a building with the space occupied, being designed to complement green certification systems such as LEED or BREEAM. WELL certified spaces are designed to improve nutrition, physical activity, mood, sleep patterns, productivity and performance of people who work, live or shop in them; air and drinking water quality, natural and artificial light quality should be optimized, and space should be more comfortable to support cognitive and emotional health through design and technology.