PPF Real Estate, leading developer and investor with property assets exceeding 2 bn EUR globally, announces recentaly that it has signed over the past year, six tenants in its class A office buildings in Bucharest – Metropolis Center and Crystal Tower, totaling approximately 6.000 sqm of newly-rented office space.
The new tenants, Ceetrus Romania, Editec and Reckitt Benckiser have signed on a total of almost 4.000 sqm of office space in Crystal Tower, citing the building’s central location and its high-quality facilities. At the same time, Orkla Foods Romania, Voici La Mode and Ameropa Romania signed leases for nearly 2.000 sqm in Metropolis Center.
Business Review talked to Juraj Sastinsky, Investment Director at PPF Real Estate, to find out more about the state the market is in today and how it changed during the last few years.
When did your company enter the Romanian market, and what was the context at the time?
Juraj Sastinsky: PPF Real Estate entered the Romanian market in 2016 when we acquired Metropolis Center in Bucharest. Acquisition of Crystal Tower followed in 2018. PPF now owns two Class-A office buildings located in the central business district of Bucharest.
At the time of the acquisitions, a growing number of multinational companies were opening their regional operational hubs in Romania, making the country an increasingly attractive business destination.
What has been the biggest change in your activities lately?
JS: Following the acquisition of our current assets in Romania, we focused on overall improvement, refurbishment, and effective asset management. Our aim is to offer tenants a top-quality environment and services based on international best practices. As a leading developer and manager of high-end properties world-wide, PPF Real Estate brings its expertise and experience from the Netherlands, Germany, the UK, and Russia in managing Class-A office buildings to the Romanian market.
Our assets in Bucharest underwent major fit-outs. We considered all the recent pandemic-induced conditions to implement COVID safety standards and features, such as flexible office space use. We also provided all modern co-working options.
By focusing on building long-term relationships with our tenants, we improve our capacity for new acquisitions, which is why we decided to strengthen the local team by appointing Mirela Ciovică, a well-known real estate expert, as Head of Leasing for our properties in Romania. In her new role, Mirela will manage and assist existing tenants and be responsible for gaining new ones. Her solid experience in the market, combined with the strength and expertise of our group, will surely be a winning combination. She will support our high ambitions in Romania.
Have you been able to keep the same number of tenants? Have you found any new tenants?
JS: The demand for our office space is steadily high. We negotiated lease extensions with the European Bank for Reconstruction and Development (EBRD), Mega Image and Tecton, and signed six new contracts in 2020, totaling approximately 6,000 sqm of newly rented office space.
The new tenants, Ceetrus Romania, Editec, and Reckitt Benckiser have signed for a total of almost 4,000 sqm of office space in Crystal Tower, citing the building’s central location and its high-quality facilities. At the same time, Orkla Foods Romania and Ameropa Romania signed leases for nearly 2,000 sqm in Metropolis Center.
Is it an advantage today to have office buildings in the center of the town or is it better to rent places in out-of-the-center areas?
JS: It really depends on the profile of the business and companies. Headquarters and high-value-added services are usually located in city centers, compared to shared service centers or call centers, which are typically located outside the center in downtown areas.
We are currently operating two Class-A office buildings in the heart of Bucharest, the city’s central business district. They are good fits for the needs of mainly multinational tenants. Apart from EBRD, Parexel, and Reckitt Benckiser, they include DLA Piper, Boehringer Ingelheim and Queisser Pharma.
What was the real estate market like in Romania in 2020? What new trends did you see?
JS: The COVID pandemic struck all economies around the world in 2020. However, Romania remains an emerging market with great potential for further development and relatively higher yield levels than other CEE countries and Western Europe. Despite the pandemic, 2020 panned out well for the office building investment market. We have seen the successful application of a so-called hybrid office system, meaning that the market can swiftly adapt to the needs of tenants. There are companies approaching the end of their leasing contracts which are looking for opportunities to reduce costs in the work-from-home context. Some companies have also entered the sub-leasing market, offering part of their spaces to others. Here, I should point out that sub-leased spaces must meet all the criteria of the tenant’s demands since there is no option to reconfigure the already rented space.
The future will very much depend on the evolution of the pandemic, but we can say that the office market is very much alive. If the economy grows, the demand for office space will also grow. But not everybody will emerge as winner. Companies will look less at cost per-square meters to lease and more at higher quality spaces for their employees, and most importantly, better locations. In a hybrid scenario, the office is more, not less important to employers. To meet tenants’ expectations, we can offer highly efficient operational models, using advanced workflow and space usability metrics, even down to the smallest detail such as the occupancy rate of each desk in a particular office.
How long will the pandemic affect the office market?
JS: First, we do not know if we are talking about few, atypical years or about a “new normal”, lasting for a decade or more. There are clients wanting to preserve their spaces while growing their teams. On the other hand, there are companies preferring to downsize their office space whenever possible. The effect of the pandemic will last through 2021, shifting the office market more towards a tenants’ market.
But, as I mentioned before, we have arguments to believe that we are in a unique position to provide centrally located office space which we can easily adapt to tenants’ demands. Having Class-A properties and the most coveted location is viewed as a benefit by existing and future tenants.
What plans do you have for 2021?
JS: Our primary focus here in Romania is to manage and expand our tenants’ portfolios in the two Class-A office buildings we own in the heart of Bucharest. We will continue searching for investment opportunities as we do in Europe and other markets outside Europe, focusing on the high-end developing metropolitan or broader metropolitan areas.