The office market showed signs of recovery this summer as transaction volumes increased in the first quarter of the year, including the share of pre-letting contracts. New office buildings were also completed in the Politehnica district of Bucharest. The recovery continued well into the second and third quarters as the gradual lifting of restrictions that began in May continued into the summer of 2021.

By Aurel Constantin

The volume of rental transactions in the Bucharest office market reached 48,000 m² in the first quarter of 2021, a decrease of 9% compared to the similar period of the previous year, when the COVID-19 pandemic was still in progress. in its early days in Europe, according to research by real estate consultancy Cushman & Wakefield Echinox.

However, compared to the second half of 2020, when the market saw low levels of leasing transactions due to the postponement of important decisions regarding the location of their offices for as long as possible – resulting in an annual decline of 40% of the volume of transactions – we can now see the first signs of stability, with a share of 29% of renewal contracts against an annual average of 45% in 2020. In addition, the share of pre-rental contracts has increased from 20 at 46%, which shows that some companies have emphasized their post-pandemic work policies and are now in a better position to make medium and long term decisions.

The first quarter of 2021 saw the delivery of the Campus 6.2 building, which is part of the larger Campus 6 project developed by Skanska in the Politehnica region, and the Millo offices, developed by Forte Partners in the center of Bucharest, the two buildings totaling a total area of ​​nearly 30,000 m². For comparison, in the first quarter of 2020 Bucharest recorded deliveries of new office space totaling 79,000 square meters. However, deliveries this year will be higher than in 2020 – when 155,000 m² has been completed – as an additional 220,000 m² of new modern office space is expected to be delivered by the end of this year.

The commercial rental stock of office buildings in Bucharest amounts to approximately 2.98 million square meters, with other buildings with an area of ​​approximately 150,000 m² being occupied by the owners, while projects for a total area of ​​370,000 m² are currently under construction and are expected to be delivered between 2021-2023.

In this context, the vacancy rate for contractual offices is 13.5%, with a significant difference between class A (10.7%) and class B (22.1%) office buildings. Although there is a gradual return of employees to offices, space use currently remains at a relatively low level of around 40-50%, as most companies continue to work from home or in hybrid schemes.

“We believe that the first three months of this year have brought positive signs, as we are noticing a significant number of pre-rental transactions for office space under construction, after a year 2020 generally marked by late decisions regarding the occupation of new office spaces. There is also a significant drop in COVID-19 cases and a positive evolution of the vaccination campaign, two key elements that will promote the return to the office of many employees, because they will feel safer at work, an essential factor in the return to work. a certain normality, ”said Madalina Cojocaru, Office Agency Partner at Cushman & Wakefield Echinox.

Some of the most important office projects under construction are One Cotroceni Park, J8 Office Park, Globalworth Square, U Center, Miro Offices, Tiriac Tower, Dacia One, Equilibrium II, @Expo or Sema London & Oslo, with developers already having signed pre-lease contracts for approximately 60 percent of the spaces.

Industrial and logistics

The local industrial and logistics market started 2021 on a positive trend, with the volume of transactions for the first three months of the year reaching nearly 200,000 square meters, double compared to the similar period of the previous year. , according to an analysis by Cushman & Wakefield. Echinox.

Contract renewals only accounted for 16% of transaction volume, so demand was mainly driven by new contracts and relocation projects. Over 40% of transactions have been pre-let, so the market will continue to grow at a steady pace. Bucharest attracted nearly 60 percent of the trading volume, but significant activity was also recorded in Timisoara, Pitesti and Brasov.

Deliveries of new spaces in the first quarter of 2021 were limited. The most important development was the 10,000 m² extension of the Decathlon distribution center inside the WDP logistics park located at the intersection between the Bucharest – Ploiesti motorway and the Capital ring road. One of the most important deals at the start of 2021 was also signed within the same project, when eMag leased 11,000 m².

“Companies in the retail, distribution and e-commerce sectors are the most active in the industrial and logistics market and we are convinced that they will be the driving force for future developments of logistics parks in Bucharest and in other cities. This sector is entering a new phase of maturity, with diversified projects developed both by international developers and local players, with high quality standards for buildings and respect for the environment, as well as stable tenants with well-defined plans and increasingly sophisticated requirements, ”said Rodica Tarcavu, industrial agency partner at Cushman & Wakefield Echinox.

Currently, developers are building new spaces with a total area of ​​over 450,000 square meters. Bucharest remains the most active market, representing around 55% of the spaces under development. Cluj-Napoca, Timisoara and Brasov, three of the most important regional logistics markets, as well as Craiova, where a new Profi logistics center will be built, are also major markets.

Investment market still recovering

The first quarter of 2021 ended with investment transactions totaling 85 million euros in Romania, a decrease of 42% compared to the first three months of 2020, when the country had not yet been significantly affected by pandemic, according to Colliers’ latest “CEE Investment Scene”. First Quarter Report 2021. Despite the slow start, investor sentiment suggests there will be a strong recovery in activity in the second half of the year, subject to progress in the fight against the pandemic and open travel policies.

Overall, investment flows to Central and Eastern Europe (ECO) decreased by almost 48% compared to the first quarter of 2020, to around € 2 billion. Poland remained the regional leader, with investment volumes representing 65 percent of the overall ECO6 total, followed by the Czech Republic and Hungary, with shares of 14 and 11 percent respectively.

The office sector was dominant across the region in the first quarter of 2021 in terms of transactional activity, with a 50% share of total investment volume, followed by industrial and logistics spaces, which are rising sharply as investors are diversifying in this area. seemingly pandemic-proof (28 percent) and remote from the more challenging retail and hospitality sectors (15 percent).

“This applies well to the Romanian market, where we had a volume of 40 million euros destined for the office segment via Bucharest Financial Plaza and a 2,500 m² office building in Brasov concluded deals, representing 50% of the total transaction volume in the first quarter of 2021. A rather unexpected 25% share went to the hotel segment through Ramada Majestic and the Opera, Central and Venezia portfolios, marking two new investor entries in the local market and bringing back interest for the hotel market and the expected imminent recovery of this segment in Romania. The remaining share went almost equally to commercial and industrial and logistics assets through the Lidl portfolio and Solo Iasi transactions. Around 30% of investors were nationals, a figure that is still balanced for the investor pool in Romania, ”explains Anca Merdescu, associate director of investment services at Colliers.

In addition, Colliers’ consultants have noticed an increased interest in real estate on the part of various investors, even some not necessarily specialized, but seeking to diversify their asset classes. The key criteria for such interests are certainly long-term leases of more than 10 years and a financially sound tenant. Such investment opportunities are highly valued and have great potential to trigger a compression of returns. Bucharest has some of the highest returns in the region for the office sector (7%), compared to a peak of 4.25% in Prague, 4.7% in Warsaw or 5.25% in Budapest. In the future, rents will remain relatively stable, according to Colliers International, with a main stock still around 18 EUR / m² in the office sector in Bucharest (and a regional average of 14 EUR / m²), and between 11-14 , 5 EUR / m² in other cities of the country.