BNP Paribas: Office rents expected to fall, new stock at 280,000 sqm

Newsroom 10/05/2010 | 13:40

The available supply of office space for 2010 is approximately 280,000 sqm, with most of it set to be delivered in peripheral and decentralized parts of Bucharest, a BNP Paribas report shows. Rents are expected to go down but at a lower pace compared to 2009. Although the 280,000 sqm of new supply represents a smaller amount than deliveries in previous years, it is still a significant total that cannot be absorbed in the present market conditions, says the report.

Overall, the lowest rents are in decentralized areas and in the outskirts, which are poorly covered by transport networks. In H2 2009, the variations in prime office rents in central areas, where supply is limited, suggest relatively stable levels for 2010, the report adds.

In 2009 demand fundamentally changed compared to the boom period, when the majority of tenants were looking for high quality premises and the share of pre-letting in total transactions was very significant. Since the economic recession hit the real estate market, demand has shifted tipping letting conditions in favor of tenants. Currently, tenants are renegotiating rental contracts in order to secure discounts, found the report. As their main objective is cost reduction, they are also relocating to better areas or into higher quality buildings as soon as they obtain more favorable contracts.

Demand has also changed in terms of office location. Areas in the periphery or in decentralized zones are less in demand because of poor infrastructure and their distance from public transport. Another significant change the research found is tenants’ preference for final products delivered instead of pre-letting, which is considered to be riskier in the current economic environment.

At present, average rents for class A offices located in central areas are EUR 190-220 per sqm per year. For class B properties situated in attractive areas the range is EUR 140-170 sqm per year while in secondary locations they vary between EUR 120-140 per sqm per year, according to the report.

Especially since H2 2008, net absorption fell significantly while completions remained at a relatively high level. Consequently, the vacancy rate more than tripled during this period. Even though take-up will be higher in 2010, the vacancy rate could increase as the decline in employment will continue to weigh on occupier demand.

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