Briefing Bucharest: ‘A tale of two office markets in Bucharest’

The Bucharest office market is following Warsaw’s lead and becoming increasingly polarized, Mihai Petrescu, senior associate, Romania, Colliers International told delegates in a keynote address at Real Asset Media’s CEE Outlook Investment Briefing, which took place in Bucharest last week.

‘We are about to see a paradigm shift in the market, especially in the capital,’ he said. ‘This will be the first year that Bucharest has a double-digit vacancy rate, which could climb past 13%.  In the past vacancies were concentrated in two areas, while now they will become more broad-based.’

The good news is that demand is holding up and 60% of new office deliveries in 2019 are pre-leased, he said. The bad news is that most of that demand comes from relocations, which means that somewhere down the line the vacancy rate will go up. 

Outlook 2019 CEE panel, Bucharest, February 2019

‘New demand for office space is stagnant, we are plateauing on the net take-up front, and that is because we are at historically low unemployment numbers and just relying on new graduates,’ Petrescu said. ‘The other factor is that deliveries of office space are accelerating and in 2019 will more than double compared to 2018, so there is much more supply coming to the market, more than the market can absorb’.

How will the investment market react? The example of Warsaw can show how the market will adapt to this new situation, he said: ‘Market segmentation will become a dominant characteristic on the investment scene, as it was in the Polish capital. Prime office buildings with low vacancy and in resilient submarkets will continue to command a premium, while the others will be left behind.’

There will be more diversification between ‘trophy assets investors are willing to pay top dollar for and other buildings which will have a value add angle’. 

Petrescu believes that three areas in Bucharest will come out as winners. Floreasca Barbu Vacarescu, which historically has been the most resilient submarket, has a large stock of new buildings and good amenities will come out on top with a vacancy rate of 5%. The CBD, which has more mixed stock, will be second with a 7.5% vacancy rate, followed by Dimitrie Pompeiu with 10%. 

Beyond the office sector, there are positive signs that the Romanian market is becoming more resilient. It may look flat and calm on the surface, he said, because ‘every year for the past four or five years we have had an annual turnover of 1 bn euros, but then it was a very shallow market with very few investors, while in the last two years it has started broadening and it really has become deeper and more resilient’. 

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