BR Analysis. Bucharest office market: The west area offensive

Razvan Zamfir 12/07/2018 | 07:22

The total stock of buildings in Bucharest reached 2.71 million sqm at the end of H1 2018. New supply amounted approximately 28,000 sqm in the first half of the year, consisting of the second tower of Globalworth Campus from Pipera, this being one of the lowest supply levels in recent times. 

When it comes to H2 2018, more than 175,000 sqm of office space are expected to be completed and the west sub-market will attract more than half of the space currently under construction.

The west area accounts for 40 percent of the total volume recorded, followed by the central area (19.6 percent) and central north (14.4 percent). In terms of pre-lease activity, the office buildings under construction in the west area attracted around 70 percent of the demand, where the major projects due to be delivered in H2 2018 are almost fully leased.

The average transaction size was of 1,450 sqm, with the largest transactions being signed by Enel (11,500 sqm pre-lease), Huawei (6,300 sqm renewal), Siemens (5,700 sqm renewal and expansion), UPC (5,500 sqm pre-lease), Thales (5,300 sqm pre-lease) and Medicover (4,500 sqm pre-lease).

Demand reached 150,000 sqm

In H1 2018, demand for office space in Bucharest continued to be strong, with around 150,000 sqm being transacted throughout that period.
Pre-leases account for 43 percent from the total volume of transactions, while renewals account for 18.6 percent. New operations (18.4 percent), expansions (10 percent) and relocations (10 percent – almost equally divided between old and new stock) complete the transactional table from H1 2018.

Technology and Telecommunications companies were the most active tenants in H1 2018, with a share of 30 percent from the net take-up recorded, followed by Oil and Gas, with 13.5 percent and Office hubs – 13.4 percent. This is the first semester when office hubs generate more than 10 percent of the transaction volume in Bucharest, mainly due to the market entrance of Mindspace and Spaces, companies who secured 18,000 sqm of office space in five different buildings.

Since demand continued to be consistent and the level of new supply quite limited compared with the previous year, the vacancy rate in Bucharest maintained below 8 percent. At the end of H1 2018, the general vacancy rate was of 7.7 percent. Looking at sub-market performance, the lowest vacancy rates are recorded in the Central North area – 3 percent, followed by CBD – 4.3 percent and West – 4.5 percent.

Rents in Bucharest

During H1 2018, the prime headline rents continued to be stable, remaining at EUR 18.5/sqm/month. In CBD, headline rents for A class office space are between EUR 17 – 18.5/sqm/month, while in Central North are in the range of EUR 15 – 16.5/sqm/month. In semi-central locations, the headline rents for A class projects are around EUR 12 –15/sqm/month, while in peripheral areas A class office space is transacted between EUR 8 –11/sqm/ month.

In H1 2018, new supply was quite limited compared with the previous semester, given that some projects were postponed for the second part of the year. Thus, during this year, we expect a volume of over 200,000 sqm of office space to be completed. The total stock will reach 2.9 milion sqm, while the 3 million sqm threshold will be surpassed in H1 2019.

More than half of the projects currently under construction are located in the West submarket, where projects such as Orhideea Towers, Campus 6.1, The Bridge II and AFI Tech Park are expected to be delivered by the end of the year.

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