Colliers: Most of the companies continue to hire people and expect to get in a better shape during 2021

Aurel Constantin 15/10/2020 | 14:21

Nearly three-quarters of landlords and tenants in the office market believe that the Covid-19 epidemics will continue to affect their operations and the overall business evolution will become satisfactory either in the second half of 2021 or in 2022, according to a survey conducted by Colliers International among more than 100 tenants and landlords on the Romanian office market.

While most tenants expect that at least 50% of their employees will return to the office by the middle of next year, landlords are also expecting a medium term impact, with the majority looking for the demand pipeline to be at least 10% lower than it was in recent years.

About 42% of tenants are dealing with negative or somewhat negative impact on their business due to Covid-19, according to Colliers International’s survey among tenants. In this context, half of the respondents had less than 10% of employees in the office in September, with another third having between 10% and 50% of the team in the office. The share of big companies, employing over 500 employees, with less than 10% of their workforce in the office is greater than the share of smaller companies with the same levels of presence in the workplace – 63% versus nearly 43%, skewing the impact on occupancy, and the impression that people are not back in the office.

A bigger part of the respondents are moving forward with their hiring plans, and only a small fraction of the companies are currently firing people or plan to do so. Furthermore, quite a lot have delayed their plans for up to one year and will likely move ahead if their economic activity continues perking up.

“Going forward, most companies are either keeping their occupied office surface unchanged or are looking for a moderate decrease, between 10 and 30% and these are fairly equal shares. Still, we note that big employers are more likely to cut back their occupied office space in the future versus smaller ones, thus more sublease spaces would be available. That said, there is still a lot of uncertainty, so the future way of working is yet to be established, with most companies likely planning to pursue a hybrid system accommodating both remote work and office work”, says Sebastian Dragomir, Partner and Head of Office Advisory at Colliers International.

Regarding rent levels, 3 in 4 responding tenants expect to see their rents lowered by the end of next year, which is not too far-fetched given the strain on business in general, as well as the increased foothold that tenants have versus landlords. Still, rents in Romania are low by regional standards, so Colliers International consultants do not expect significant changes and look for improved leasing conditions (maybe regarding the contractual terms or incentives).

67 percent of landlords expect rents to remain stable

Most landlords (67%) are betting on a flat market with stable rents, and only 24% are rather expecting a correction in rent levels, according to Colliers International’s survey among landlords with office space portfolios in Bucharest and regional cities. In terms of vacancy rate in the next 12 months, 64% of respondents expect to see it intensifying to a certain level, alongside a desire to offer increased incentives (79% of respondents) highlights a shift towards a tenant market.

Regarding renewals, the significant share of respondents confirms no changes compared to previous years. However, 30% of respondents noted a decrease in leased surfaces, while 24% of respondents have lost ground due to rent and duration of lease reductions.

The coronavirus pandemic has not changed the landlords’ plans for development significantly and things seem to remain somewhat under control, whereas most respondents state their projects are progressing normally, while a minor share of 9% had to involuntarily delay their plans for up to one year.

“Compared to 2018-2019, the pipeline demand is noticeably lower for most landlords that participated in this survey, which offers arguments for leasing terms to become more favourable for the tenants. Also, office landlords are taking some containment measures and will try to remain in touch with their tenants’ needs. Furthermore, while vacancy is likely to rise amid the coronavirus, we are confident that the increased vacant spaces can be absorbed in time as the overall office stock in Bucharest, and in Romania in general, is fundamentally low for a growing service driven economy, but the balance of power will certainly shift towards the tenants in the next years”, concludes Sebastian Dragomir, Partner and Head of Office Advisory at Colliers International.

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