CEE Office Markets Increasingly Driven by Renegotiations
An on average 10% decline in take-up across CEE (excl. Eastern Europe (EE)) indicates that companies are becoming hesitant again in terms of their expansion plans, compared to the situation six months ago. Budapest (-70%) in particular saw a dramatic decline in take-up whilst Warsaw and Bucharest saw take-up increasing. Furthermore, Moscow’s take-up declined significantly to around -20% compared to H2 2011, according to the latest research from global property adviser CBRE.
An on average 10% decline in take-up across CEE (excl. Eastern Europe (EE)) indicates that companies are becoming hesitant again in terms of their expansion plans, compared to the situation six months ago. Budapest (-70%) in particular saw a dramatic decline in take-up whilst Warsaw and Bucharest saw take-up increasing. Furthermore, Moscow’s take-up declined significantly to around -20% compared to H2 2011, according to the latest research from global property adviser CBRE.
Jos Tromp, Head of CEE Research & Consultancy, CBRE, commented:
“Across Central & Eastern Europe (CEE) office leasing activity is increasingly driven by contract renewals. The reason for this is two-fold: 1) many leases negotiated during 2006 – 2008 are coming up for renegotiation and 2) market fundamentals in most markets are tenant-favored and can therefore offer good value when coming up for renewal.”
Construction activity in Moscow and Poland in particular has been on the rise in recent quarters. In Moscow around 1,5 million sqm is under construction (U/C) and expected to be completed before the end of 2013; this amounts to around 12% of current stock. In Warsaw around 515,000 sqm are expected before end of 2013 based on pipeline (U/C). Despite the fact that around 40% of this office space has been pre-let we are expecting upwards pressure on vacancy levels over the next 1,5 years as a result, especially knowing that an additional 200,000 sqm is U/C and expected to be completed during 2014 and 2015, including the Warsaw Spire.
Most other office markets across CEE have seen significantly less new development starting. Development financing is generally much more challenging to obtain, combined with the fact that fewer parties are willing or able to start developments due to generally high vacancy rates and subdued rental levels.
Total office investment reached Euro 700 million during the first half (H1) of 2012.
Mike Atwell, Senior Director of CEE Capital Markets, CBRE, commented:
“The main reasons for the slowdown in activity are the fact that most active investors have a preference for retail as well as the fact that several top-properties have been sold over the last couple of years reducing the short-term liquidity in the office market.”
Over 55% of the volume was registered in Russia followed by Poland and the Czech Republic, however, these markets have also registered overall declines in activity in line with the average for CEE.
Mike Atwell added:
“An actual softening of yields is becoming more widely anticipated for the remainder of 2012 since the number of active investors and financiers has been reduced considerably. Prime assets are still sought after for good prices, however, any risk - whether it is related to vacancy or the technical state of a building - is automatically leading to much more challenging negotiations on pricing.”
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