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JLL Romania: 80 per cent of buildings under construction built according to international green standards

Stability and sustainability are the words that can describe the Romanian office market in 2017, according to Madalina Marinescu, Office Department consultant JLL Romania.

2018-04-03 11:02:53

"Even though the total development activity was slower compared to 2016, the office market remains active both in term of leasing and deliveries in 2017," she told The Diplomat-Bucharest. "The leasing activity was supported mainly by IT&C companies and BPO/SSCs, both new to the market or in search of expanding space. Vacancy rate in Bucharest decreased over the year to around 9.2 per cent, one of the lowest levels registered since the financial crisis. Outside of Bucharest, the vacancy rate is estimated at six to eight per cent. Office supply in Bucharest reached 140,000 sqm in 2017, a value half of that registered in 2016. With a stock of 2.53 million sqm, Bucharest is still behind in the CEE in 2017. Another 700,000 sqm of office spaces represented the total stock in the main cities outside of Bucharest – Iasi, Timisoara, Cluj-Napoca and Brasov.

"The stock in Romania is also behind Poland (9.7 million sqm), Czech Republic (over four million sqm) and Hungary (approximate 3.4 sqm), which is stimulating developers to start new projects both in Bucharest and regional cities.

Timisoara and Cluj-Napoca were the most active regional cities last year both in terms of development activity and leasing activity. Projects amounting to 39,000 sqm were completed in Timisoara last year and the total demand for the city exceeded 20,500 sqm. In Cluj-Napoca 18,500 sqm new office spaces were built, and the leasing area comprised almost 9,000 sqm. The good performance of these cities came from the increase in demand from international and local companies, IT and BPO sectors being the main drivers.

According to Marinescu, 80 per cent of the buildings under construction are built according to international green standards: "These kinds of certificates are going to be a market practice and will be included in the standard delivery."

In her opinion, the macro-economic forecast for Romania continues to be positive, despite some recent concerns: "The country was the EU's top performer in the first nine months of 2017 (with GDP growth estimated at seven per cent) and it's expected to hold this position in 2018 as well, with GDP increase forecast at 6.5 per cent. IT, BPO&SSC companies will be the main drivers of the market. Also, the leases that are about to expire in class B buildings are looking to relocate into class A buildings, especially due to the rent and incentives offered by the landlords becoming more and more attractive."

Marinescu said the opportunities this year are the solid demand growth in 2016 and 2017, stable rents, and strong development of the North and Centre West areas in Bucharest, and the future expansion of the Metro system. On the other hand, the challenges will be political and economic environment; main office areas are becoming crowded; the public transportation system is undeveloped and the availability of the work force is in question.

Each new office leasing contract signed in Bucharest last year created at least 130 new jobs. The Dimitrie Pompeiu and South sub-markets made the top, with more than 200 new jobs per transaction, according to the latest JLL market report.

As a result, office net take-up in Bucharest (expansions and new leases) reached 171,000 sqm, a ten per cent increase when compared with 2016. The average leased office area was of 1,300 sqm, resulting in an equivalent of 130 new jobs created for each company. New demand accounted for 48 per cent of the total take-up registered last year whose value reached 350,000 sqm.

The average office area leased by companies varies depending on the sub-market in which the lease is signed. This reflects how the market is polarized in terms of the tenants′ profile.
According to JLL's report, the Dimitrie Pompeiu sub-market registered the largest average leased office area. Here, a number of 13 companies provided new demand of office spaces of more than 2,500 sqm, which means at least 250 new employees accommodated for each transaction.
In the South part of Bucharest, seven companies leased an average of approximately 2,100 sqm of office space and thus created in the area at least 200 new jobs each.

The evolution of CBD transactions came as a surprise of the market. Here, the average leased area of 1,634 sqm equals more than double of the value of 2016. In this sub-market 17 contracts were signed, representing 16 per cent of the net take- up. Considering that companies allocate on average ten sqm of office space per employee in the CBD area, each leasing contract signed created 160 new jobs.
Traditionally, in this sub-market, the average leased office area used to be a lot smaller as a consequence of the low vacancy rate. However, in the last 18 months the delivery of two important projects contributed to the conclusion of larger transactions than usual.

In the Floreasca-Barbu Vacarescu area, the average leased office area was 1,464 sqm. The sub-market made the top in terms of number of transactions, respectively 28, totalling an area of 41,000 sqm leased. The area also remained the most attractive in 2017, with almost 25 per cent of the net take-up and 4,100 employees (considering that each contract signed would generate 150 new jobs).
The Centre-West and West sub-markets registered transactions of more than 1,200 sqm each, comprising respectively 11 per cent and four per cent of the new demand.

With 15 transactions and an average of 1,296 sqm leased, the Centre-West area, the new hub of office developments will register an increase of 2,000 employees, 130 for each new contract concluded here.
In the other sub-markets, the average leased office area was below 1,000 sqm, with the lowest level registered in the North part of the Bucharest, of 427 sqm.

"As compared with 2016, last year registered an increase in both the average area leased by companies and the number of new leasing contracts. Consequently, the new demand exceeded the 2016 level, and most important, it was above the new supply delivered last year of 140,000 sqm. When looking at sub-markets, we do not see any significant change in the average leased area as compared to the previous year, but given the projects to be delivered in 2018-2019, we may see changes in the preferences of companies in terms of location", comments Marius Scuta, National Director Head of Office Department and Tenant Representation JLL Romania.

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