Colliers: The recovery of the office market in Bucharest continued in the first half

New annualized demand for modern office space in Bucharest in mid-2022 reached values ​​comparable to the average of the previous decade, according to consultants from Colliers, who observe a clear differentiation between the way new and existing buildings who have not benefited from investments in technical improvements are perceived. Specifically, the annualized rate of new demand has nearly doubled since its pandemic low, and tenants are increasingly opting for new buildings with good technical specifications and well-located. For some buildings or even sub-markets, Colliers consultants point out that Bucharest is starting to become a market for office building owners.

“The annualized rate of new demand is comparable to the value recorded in 2019, although it is around a third lower than the record value recorded in 2017. Nevertheless, an average of more than 200,000 square meters of office space modern offices has been built per year during these years, compared to an average of around 120,000 square meters per year over the period 2022-2024, according to the optimistic scenario. Currently, we are not yet at 2017-2019 demand levels, but we are closer to those values ​​than pandemic lows. This return has been accompanied by a relatively low volume of new deliveries, which translates into fewer options for tenants when deciding to rent offices”, explains Victor Coșconel, Head of Leasing | Offices & Industrial Agencies la Colliers.

After integrating remote work into the usual work model of most companies, the office market will change dramatically, consultants at Colliers believe. However, the transition to a hybrid working mode will not necessarily mean a reduction in occupied space, since companies will instead aim to maximize the quality of the time employees spend in the office. Basically, the need for large office spaces is increasingly being replaced by dedicated spaces that are emerging for specific activities such as collaboration, conferencing, one-on-one discussions, more relaxed meeting spaces, relaxation areas and even entertainment. As a result, the current trend is to transform and remodel office spaces to facilitate this new way of working.

In the medium term, the big challenge may not necessarily be to change the way we work because the economic news is less favorable, says Victor Coșconel. The great economic and geopolitical uncertainties, coupled with the risk of recession in certain developed economies, as well as the tightening of monetary policy in the United States and the euro zone, are factors that could strongly affect activity in the developing countries, and Romania is particularly vulnerable to negative external events. “Under these circumstances, we are treating the evolution of the office sector with cautious optimism in the coming quarters, given that there are significant risks that the economy will not do as well, and we could find ourselves in a situation diametrically opposed to what we saw last year in the Romanian office market,” says the expert from Colliers.

In the longer term, the positive factors that have driven Bucharest to become one of the most exciting and dynamic service centers in Europe remain – relatively low salaries compared to Western Europe combined with good technical and linguistic skills. The market is therefore expected to grow not only on a quantitative basis but also on a qualitative basis, with many other global top-notch companies (mainly in technology, but not only) entering the market.

Bucharest’s low per-capita modern office stock is a long-term isolating factor, according to Colliers consultants, and the modern office stock is expected to start growing again in a few years. In the first quarter of 2022, just over 70,000 square meters of new modern office space was delivered in Bucharest, bringing the total stock to almost 3.3 million square meters and could reach 4 million square meters by the end of the decade. The regional cities will remain less developed than Bucharest but will continue to grow faster than the Capital and to prosper.

“We find that pandemic-era scenarios suggesting that large numbers of tenants would make office space important in the context of wanting to prioritize remote working have not materialized. On the contrary, companies that have reduced their footprint as part of the adoption of a hybrid way of working are rather exceptions. Nevertheless, the office market growth scenarios face quite significant challenges in the short to medium term, given the international economic climate. A recession in developed countries could easily contaminate the Romanian economy, which would also significantly reduce the demand for offices,” underlines Victor Coșconel.

Colliers consultants estimates that around 130,000 square meters of new modern office space could be delivered this year, with a total of around 360,000 square meters for the 2022-2024 period. This seems quite low in a market where the reported value of new demand averaged around 140,000 square meters per year in the years before the pandemic (it is likely that direct transactions between landlords and tenants, which are not declared, add at least 30% to new demand, according to Colliers’ estimates).

“In the post-pandemic world, tenants are all the more concerned that the time spent by employees in the office is of quality and are therefore also looking for a suitable office. With an increased demand for this type of premises and a relatively low volume of deliveries, this creates the conditions for the development of a market of owners for certain sought-after buildings or sub-sectors. In other words, even with an aggregate vacancy rate at Bucharest level, in line with a tenant market, this figure does not explain the growing gap between new and modern buildings and older and obsolete ones. As a result, there are also premises for a more substantial increase in prime rents in the coming quarters,” concludes Victor Coșconel, Head of Leasing | Office and industrial agencies at Colliers.

Clear signs of recovery in the office market can also be seen in the business of Colliers, which was the most active office rental agency in Bucharest in 2021, representing tenants in leases of over 43,000 square meters, a volume that places the real estate consulting company at the top at the national level. Total demand for modern office space increased by 23% in 2021 to 263,000 square meters compared to the same period last year, according to data from Colliers. Meanwhile, new demand reached 104,000 square meters, up 47% from the same period in 2020.

Jose C. Birney