The office pipeline under construction has remained subdued across CEE and without significant preleases developers are struggling to secure financing. Warsaw is the exception to this trend, where several speculative projects have started during 2011.
Vacancy levels range from 6.7% in Warsaw up to 22% in Sofia and Belgrade. The most significant decline to vacancy during 2011 took place in Sofia. Kyiv and Zagreb are still trending the other way.
‘Despite declining vacancy across CEE, the general consensus is that most markets are still somewhat imbalanced. Warsaw’s office market seems to be rather solid, and despite a growing pipeline under construction, appears able to keeping vacancy rather low. Solid demand and strong absorption are the backbone to this,’ said Jos Tromp, head of CEE research and consultancy, CBRE.
According to Patrick O’Gorman, director of CEE capital markets, CBRE, as the search for high quality assets has continued and a lack of product in markets such as Poland and the Czech Republic becomes visible it is not unthinkable that yields may compress further for the best assets in these markets.
‘In addition, Budapest, Bratislava and Bucharest still offer some room for compression for which improving occupational market fundamentals seem to be the prerequisite. All of this is obviously dependent on the wider macro-economic picture,’ he explained.
Occupational market activity decreased again during the second half of 2011. Take up figures in Warsaw, Bucharest and Prague went down by 20 to 40% compared to the first half of the year. This occurred while total leasing activity in Warsaw reached a record during 2011, indicating that renewals are still playing an important role across the region. The fact that vacancy did not rise substantially in Bucharest and Prague is mainly driven by the limited amount of projects under construction.
‘A recovery in demand is most likely in markets that have a strong outsourcing component and on the other hand are less dependent on European economic growth. Germany’s solid economic performance during 2011 is giving confidence that there will be a positive spin off on demand for countries such as the Czech Republic and Slovakia, however, the outlook remains uncertain for 2012,’ said Tromp.
Claudia Chistova, head of office research, CBRE in Russia, revealed that during 2011 the situation on Moscow office market was stable. ‘Occupier activity remained strong especially for the central areas of the city, while the delivery of new projects dropped considerably. The overall vacancy rate decreased and stood at 14% by the year end. Prime rents grew further during 2011 in line with the trend observed in 2010. By the year end the prime rents increased by 30%,’ she said.
‘In 2012 we expect stable demand for high quality office space in the best locations and increase in rents for this space. In 2012 the level of new delivered office space is expected to be even less than in 2011, not more than 500,000 square meters. Due to the lack of new supply, the vacancy will continue to decrease,’ she explained.
‘Certainly, the volatility of European markets suggests risks for Russia’s real estate market. In addition to the uncertain macro economic landscape, Russia’s political landscape is also a cause of some uncertainty leading up to the presidential election. Many occupiers will continue to exercise caution in their long term expansion plans, and this will be a moderating factor on demand,’ she added.
