Small cities present expansion options for office space market

Newsroom 16/07/2015 | 17:18

Bucharest is leader on the office space market, followed closely by the main University centres (Cluj-Napoca, Timisoara, Iasi). Still, there’s unexplored territory in secondary university centres like Brasov, Craiova, Sibiu, Galati, says an ESOP study.

 

Entry into a secondary city market, however, is not an easy one, especially when the necessary space amounts to 3,000-6,000 square meters. This is due to limited stock of office space built to date, the existing estimated stock amounts to between 18,000 to 35,000 sqm / city. Specific stock structure of these markets is predominated by small buildings (hundreds of square meters to 1,000-1,500 sqm), while larger buildings are rare (3 to 5 per city) and have relatively small surfaces, up to 2,500-3,000 sqm.

“Behind these momentary crises there is a real investment opportunity, accessible primarily to local developers who have specific market expertise and can react quickly to build a solution. But opportunity is open for medium sized developers in large cities also, those who have the advantage of business knowledge of top class office buildings, ie the construction, financing and leasing them,” said Alexandru Petrescu, managing partner at ESOP.

One way to build sustainable office spaces is to develop projects in phases, adapting buildings to the local market (4,000 to 7,000 sqm).

According to the study, one of the top influencing factors onthe office market is the number of students in the city – a higher number of students means a higher number of employment possibilities for multinational companies.

In the moment, the greatest demand for rental of office space in university centres comes from IT&C companies, which in Bucharest had a share between 32 to 40 percent of transactions in the last 5 years, while the figure exceeded 55 percent in other cities, according to the ESOP analysis.

In the province, rents requested by owners of Class A office space ranges from EUR 12-14 / sqm. Although it is important, cost of office space is not the determining factor in the current analysis of companies looking to expand, rent having a percentage that varies between 4 and 10 percent of turnover. The essential factor in such assessments is labour costs, which in some industries can have a share of over 75 percent of total company costs.

“One of the few alternatives available to large tenants in the current context is the build to suit solution, building a custom building under a prelease contract. Local developers are beginning to use this solution increasingly more often in talks with major tenants and we believe that on the short and medium term this approach has the greatest chance of success on the office development market in secondary university towns,” conludes Alexandru Petrescu.

ESOP is a company working for 14 years in real estate consultancy market. Since 2013, it is working in association with CORFAC International – Corporate Facility Advisors – an alliance of entrepreneurial real estate companies engaged in providing services locally, nationally and internationally. Among companies that have relocated headquarters with ESOP there are: Enel, Ipsos Interactive Services, Konica Minolta, Mega Image, SBS Broadcasting, Lugera & Makler.

Natalia Martian

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