- Demand is growing steadily, with the percentage of pre-leases reaching 15% from total leased area.
- Romania is in direct competition with the rest of the CEE countries, especially Poland, in terms of opening centers of excellence / shared services, which adds pressure to the existing stock of modern office space.
- The stock of green office buildings which can contribute to the zero carbon targets of the tenant companies is limited, while the pressure of targets is growing exponentially in these companies.
- The high level of workforce accommodation to the normality of working in a hybrid format has led to a profound change in employees’ expectations of their workspace and motivations for returning to the office.
By the end of 2022, only six office buildings totaling just 135,700 sq m GLA will be added to the Bucharest’s modern stock, slightly increasing it up to 3.33 mln. sq m. 65% of the future new supply is part of the West – Central sub-market where AFI, One United Properties and River Invest are preparing to bring to the market three new schemes. Zooming into the Central sub-market, the Tandem project developed by Forte Partners, together with the Tudor Arghezi project are two schemes under development that will bring a 20% share of the future supply in 2022. The remaining 15% is claimed by the North – Western sub – market which expects the first phase of @Expo to be completed, a project developed by Atenor Group, according to the latest report of CBRE Romania, “Market Outlook 2022”.
So far, so good. However, …
On a closer look, one might get mixed feelings regarding the pipeline to be delivered. Although the new supply to be delivered by the end of this year is at its lowest in a 5-year cycle, the 2023 estimated deliveries gathering a total GLA of 267,300 sq m ranks in top 3 deliveries of a 10-year interval. Nevertheless, the authorization crisis in place represents a threat that may affect the existing availability on short term.
“Companies in search of new modern spaces or those who will need to renew their lease contracts could find themselves in a very uncomfortable position as Landlords will have a very solid negotiating position. Instead, now we are in an optimal moment to start a decision-making process: increased vacancy, available new supply and an ongoing organizational transformation trend generated by the pandemic disruption,” explains Vlad Damian, Head of A&T Services Office | Investor Leasing, CBRE Romania
2021 total leasing activity (TLA) amounted to 280,500 sq m, a value 16% higher compared with the one registered in 2020. Take-up (total transactions excluding renewal / renegotiation) represented 58% of the total leasing activity and was 15% higher than the figure for 2020. The positive sign indicated by YoY increases is a reminder that throughout 2021, office activity started to recover and gain higher shares of the split time between work from home versus work at the office. Pre-leases of 2021 represented a quarter of the yearly take-up, while renewal / renegotiation deals totaled 117,700 sq m, also exceeding by 16% the 2020 figure for such type of transactions.
Top 3 overall new leases per business category
|Computers & Hi-Tech||36%|
|Consumer Services & Leisure||25%|
top 3 overall renewals/renegotiations
per business category
|Computers & Hi-Tech||46%|
|Manufacturing & Energy||28%|
|Consumer Services & Leisure||15%|
2022 has started in a different paradigm
The year emerged with companies resuming their real estate decisional process put on hold in the last years, and with new nearshoring strategies in place for players that wouldn’t consider Romania until now as a base for their operations. The pre-leases level rose to 15% from total leases, showing that companies have already reset and restarted their strategies. A very good indicator for 2022 is also that in January transactions were concluded representing 10% of the total new and expansion demand of last year.
The local office market is attracting more and more Fortune 500 companies, putting Romania on par with more mature markets in the CEE region. The last announcements of Booking Holding, owner of Booking.com sealing a deal for 8,000 sqm in U-Center, or Ford Romania that has just confirmed the opening of their new Business Solutions Center in One Cotroceni Park are the immediate results of the current new strategies that are considering the nearshoring approach as a winning solution for the future. Both companies were advised in the lease process by CBRE Romania, the leader market by the number of transactions made in 2021, respectively 79, with a market share of 20% and an average deal size represented by CBRE of 1,800 sq m.
“Romania, which is now the 6th ranked in terms of largest markets after the UK exit from UE, has the fastest broadband internet speed in Europe and still has a large pool of underpaid skilled workforce comparing with UE markets and is in direct competition with Poland and the rest of CEE countries to attract BPO/shared services companies. This will only mean new demand added on top of the organic claim of the local office market, increasing the pressure on the best available office spaces,” states Alina Calciu, Head of A&T Services Office | Occupier, CBRE Romania
Green buildings status is not yet that green
Although 95% of projects under development are in the process of green certification, only 70% of modern office space across the country is currently green certified. Similarly, over the past 9 months, we have seen an exponential increase in ESG requirements from companies in terms of workplace, whether existing or planned spaces.
Most multinational companies present in Romania should comply with the Net Zero Carbon target assumed by their groups, having direct consequences in the real estate strategy. Either we are discussing about staying in the current space that needs to be adjusted to meet new standards, or we are scouting for venues in new modern buildings, a new set of requirements was added by companies. The role of technical advisers became more important and having a team of 10 engineers and 5 architects as CBRE Romania currently has, is outstanding in real estate consultancy.
Landlords are taking seriously the ESG standards and we’re expecting to see more and more improvements processes for the existing assets. Consequently, based on this information, companies could benefit in their NZC quest by stepping in at the right moment.
”Next normal”, ”hybrid work”, ”digital revolution”. And now, “flexibility”.
The office leasing activity in 2021 was highly sensitive to the ongoing sanitary crisis triggered by the COVID-19 pandemic. ”Next normal”, ”hybrid work”, ”digital revolution” were the new concepts to adapt to in every company, when shaping development strategies. While 2020 was held by a “wait and see” behavior, 2021 was a year of resumed real-estate decisions. Looking forward, 2022 will be a mature year in terms of consolidated strategies that balance employee’s safety and hybrid work options with office disruption proof planning.
Nevertheless, companies are increasingly considering the strategic role of workplace consultancy, relying on this type of approach in their efforts to understand and motivate their workforce. Change management is the added value rewarded by companies, as we see in CBRE’s ongoing projects which, starting with this year, benefits from the know-how and concept design skills of a new Workplace 3-architects-team.
“Both landlords and companies embraced the new normal, integrating the digital component in their day-to-day tasks and establishing the hybrid work as the way forward. Looking ahead, 2022 will be a mature year in terms of consolidated strategies that balance employee’s safety and hybrid work options with office disruption proof planning.” concludes Tudor Ionescu, Head of A&T Services Office
Employees got used to a different state of mind and comfort during these 2 pandemic years and their expectations are not only higher, but most importantly, they are much different now. Flexibility is the word. But also, Collaboration and Experiences.