European Office Marketbeat Snapshots Q1 2012 - SPG Intercity

MARKETBEAT
OFFICE SNAPSHOT
ROMANIA
A Cushman & Wakefield Research Publication
OVERVIEW
2012 should see economic growth slow but
remain in positive territory, linked to
austerity measures as well as lower export
demand. Business sentiment however is
improving with occupier activity robust,
vacancy falling and prime rents in Bucharest rose for the first time
in 24 months to €19.00/sq.m/month. Prime rents also rose in
Cluj-Napoca’s CBD due to the lack of Grade A space, while
holding firm across all other locations.
OCCUPIER FOCUS
Q1 2012 recorded 49,000 sq.m of gross take-up, of which prelets
and new leases accounted for 85% of the total. Expansion
driven activity is still low as the large majority of companies are
still very cost conscious.
With only 2,500 sq.m delivered to the market in Q1 2012, of
which just over 70% was pre-let, the overall vacancy rate fell for
the fourth consecutive quarter to 8.0%. Further falls are
anticipated over the course of the year as some planned schemes
are shelved, others put on hold and banks continue to be
reluctant to take on any new development risk. As such the
active pipeline has declined and as at Q1 2012 space under
construction in Bucharest amounted to around 130,000 sq.m, a
long way off the high of 700,000 sq.m plus seen in late 2008/early
2009. However, with a large amount of space easily ‘re-activated’
continued caution should be exercised by lenders and developers
alike so as to maintain a healthy demand:supply balance and not
flood the market with new supply.
INVESTMENT FOCUS
Q1 office trading volumes were close to €92 million, equating to
80% of the 2011 total. This comprised of two deals linked to the
office park ‘City Business Centre’ in Timisoara whereby NEPI, the
South African fund, purchased three already constructed buildings
and forward funded the development of two others on the same
park. These transactions, in addition to some already in the
pipeline have seen yields for prime product, where bidding is
competitive, sharpen by 50 bps over the quarter.
OUTLOOK
The outlook is relatively positive but the further tightening of
financing conditions is expected to limit investment activity in the
first half of the year at least. Grade A vacancy is expected to
decline, but this is likely to be at the expensive of Grade B and C
as occupiers upgrade their space. Over time, as development
completions slow further, further upward pressure on rents will
be seen.
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MARKET OUTLOOK
Prime Rents: Pockets of rental growth expected in locations
where Grade A supply is limited.
Prime Yields: Following compression on the back of better
fundamentals, yields will now stabilise.
Supply: With schemes on hold and speculative
development falling, vacancy should decline.
Demand: Higher levels of pre-lets and new leases are
anticipated but overall levels remain stable.
PRIME OFFICE RENTS – MARCH 2012
MARKET (SUBMARKET) € € US$ GROWTH % CAGR
SQ.M/MTH SQ.M/YR SQ.FT/YR 5YR 1YR
Bucharest (Centre) 19.00 228 28.2 -1.0 2.7
Bucharest (Out-of-Town) 11.00 132 16.3 -4.7 0.0
Timisoara 11.50 138 17.1 -5.2 0.0
Cluj-Napoca 12.00 144 17.8 n/a 4.3
Constanta 10.00 120 14.8 -7.8 0.0
Brasov 10.00 120 14.8 -7.8 0.0
PRIME OFFICE YIELDS – MARCH 2012
MARKET (SUBMARKET)
(FIGURES ARE GROSS)
CURRENT LAST LAST 10 YEAR
QUARTER QUARTER YEAR HIGH LOW
Bucharest (Centre) 8.50 9.00 9.00 14.00 6.25
Bucharest (Out-of-Town) 9.75 10.00 10.00 11.00 6.50
Timisoara 10.00 10.50 11.00 14.00 7.50
Cluj-Napoca* 10.00 10.25 10.50 10.50 10.00
Constanta 10.75 10.75 11.00 14.00 7.50
Brasov
NOTES:
* 1 year record
10.50 10.75 11.00 14.00 7.50
With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of
Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very
much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used
as a comparable for any particular property or transaction without regard to the specifics of the property.
RECENT PERFORMANCE
11.50%
10.00%
8.50%
7.00%
5.50%
4.00%
Source: Cushman & Wakefield
Q1 2012
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
15.0%
-5.0%
-15.0%
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5.0%
AVERAGE PRIME YIELDS (left) RENTAL GROWTH (right)