Office market still low in business centers but loaded in expectations

Newsroom 10/03/2008 | 15:33

Studies on the real estate market say there is still enough room for the absorption of new space, based on the high demand coming from multinational companies that need large surfaces of modern office space and from local medium-sized enterprises looking for smaller office areas.
With Bucharest holding about 60 percent of the total stock of office buildings, cities such as Brasov, Cluj, Constanta and Timisoara are following from a distance, despite being considered important business poles in Romania.
From 2003 to 2007, Bucharest got A-type business centers valued at some EUR 400 million on this segment. Opera Center, America and Europe House, Charles de Gaulle Plaza , Iride Business park and Bucharest Business park stand out.
The northern areas Baneasa and Pipera, which have emerged as office submarkets in recent years, are also important. Pipera has seen deliveries such as Conect Business Park and Novo Park along Iride Business Park in the last two-three years.
According to some local developers, such as the director of a Timisoara-based company making investments in A-type buildings, the residential and office segments are catching up in parallel, without influencing each other.
“The investments in office buildings still offer a high investment yield, as we have seen from the last two years' transactions. The difference in profitability is made by the location, type of building and facilities,” said Ovidiu Sandor, director of Timisoara-based group Modatim.
In the western city, Modatim Investment, the investment division of Modatim, is building the second office building of the company's Timisoara-based project, City Business Centre.
The company completed works at the first A-type office building with an investment of EUR 8 million in 2007, lending space to clients such as Alcatel-Lucent, IBM, Vodafone and Investkredit Bank.
According to Sandor, the second building of the project is a twin of the first one, the two buildings being linked through a commercial gallery.
The office compound will be finished in January 2009. It will comprise, by the completion time set for 2011, five A-type office buildings with 32,000 sqm of office space, 10,000 sqm of commercial area and 650 parking spaces, according to the developer.
Modatim, originally a producer of textile products, has allotted some EUR 50 million to developing Timisoara's first A-type office compounds.
The developer will spend about EUR 8 million on developing each of the compound's buildings, according to Sandor. He estimates a turnover of EUR 1.5 million in 2008 and predicts EUR 9 million turnover to be reached within three years. For the time being, the company will develop projects in Timisoara only.
According to the investors that look at A-type developments, downtown locations are targeted mainly by companies with pedigree,
such as multinationals, banks, IT companies, consultancy and law firms.
This would explain the need and the demand for A-type office buildings. “Of course, there are companies which trade the location or the high-quality facilities of A-type buildings for a smaller rent,” said Sandor. Such companies are the cost-sensitive ones like call centers or local firms.
Still, pundits say the investment is worth it because the certainty of increasing demand for such buildings in the coming years.
“There are different opinions on the growth speed of this segment but I don't think that any experts think the market will decline. Investments come when there is a disparity between supply and demand,” said Sandor.
In terms of supply, the other cities are far behind Bucharest. Western Romania cannot accommodate too many A-type offices, according to studies, and the investment rates in such buildings appear to confirm this.
Modatim's projects seem to be the pioneer on this segment, with an office space supply of 40,000 sqm and a rental value of EUR 10 to 12 per sqm, rising to 17 EUR per sqm, according to the market data. Sandor thinks that his five-office buildings project will draw other similar investments from developers, but these projects can only be completed in three years' time.
By comparison, Brasov holds an office building supply of 100,000 sqm from existing office buildings such as Maestro Business Center, the first A-class project in the city, City Business Center and Olimpia Business Center, with rents ranging from EUR 16 to 19 per sqm within a A-class space and up to EUR 12 per sqm in a B-class office construction.
Cluj also has the business center Global Plaza in Tetarom 1 industrial park, which will provide 7,000 sqm of A-type offices to be completed by the middle of 2008. Elite Grup and Mao Imobiliare will build offices in their residential project worth EUR 90 million.
Developers of commercial centers also see profit in building office space. Iulius Mall comprises an A-type business center of 7,800 sqm while Atrium Center
will deliver 11,000 sqm A-type offices. Iasi holds a supply of 50,000 sqm with a rental value up to EUR 15 per sqm, according to a
study from Rom International Service.
Comparing the local A-type business office supply with a developed market such as Poland's which delivered up to 150,000 sqm of A-type buildings in 2006, Sandor predicts a strong growth in the office market in Romania over the next three to five years.

By Magda Purice

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