Colliers: About half of H1 office leases signed in Bucharest were renewals
<p>Leasing activity in the Bucharest office market in the first half (H1) of 2024 saw new demand rise by 7% year-on-year, reaching 64,000 sqm, while total demand slightly decreased to 160,000 sqm, according to Colliers’ report on real estate market developments for the first six months. Contract renewals accounted for roughly 50% of transactions, driven by uncertainty over hybrid work.</p>

<p>Additionally, according to Colliers, there were two consecutive quarters without new modern office completions, and no deliveries are planned for the third quarter, marking the longest period without new office space since 2005.</p>

<p>The only major project completed this year is AFI Loft, a 16,500 sqm office building above the AFI Cotroceni shopping center in the Centre-West submarket.</p>

<p>In terms of new demand, namely deals that improve occupancy, thus excluding relocations from competitive stock or renewals, the largest transaction in this category is Genesis College, which leased a building of approximately 10,000 sqm from OMV Petrom as part of Genesis College’s headquarters project. Colliers points out that this is not a typical transaction, but a unique case.</p>

<p>Overall, the professional and business services sector represents the largest number of office building clients, slightly ahead of the IT&amp;C sector in terms of leasing activity, with both sectors completing transactions exceeding 40,000 sqm in the first half of the year.</p>

<p>“If we look beyond the headline figures, which are solid, the office market presents a more nuanced picture. Cumulative demand over the past four quarters has exceeded 400,000 sqm, peaking in the first quarter of 2024. This reflects a 34% increase compared to the pre-pandemic annual average (between 2017 and 2019). This performance ranks as the second-best among major office markets in EMEA, just behind Gdansk in Poland and slightly ahead of London’s Docklands submarket. We interpret this to be a clear sign of the Bucharest office market maturing and transitioning into a new phase,” explained Victor Coșconel, Head of Leasing | Office &amp; Industrial Agencies at Colliers.</p>

<p>In the past two years, renewals have accounted for a larger share of demand than usual, as many companies postponed decisions on their office lease contracts due to uncertainty surrounding hybrid work, Colliers also said. This year saw the signing of the second-largest lease contract in Bucharest’s history, with Genpact renewing its lease for 29,000 sqm of space in Hermes Business Campus.</p>

<p>Before the COVID pandemic, renewals accounted for an average of 28% of annual demand, dropping to 19% in 2011 and 22% in 2019.</p>

<p>In terms of rents, they remain slightly higher than in the first half of 2023. Colliers consultants continue to observe increased demand for good quality Class A buildings, which is driving higher rent growth and occupancy rates compared to other properties. Additionally, with no new deliveries this year, estimates suggest a slight decrease in the overall vacancy rate.&nbsp;</p>

<p>Victor Coșconel commented: “The office leasing market remains in decent shape, although new demand is below expectations due to hybrid work and global economic uncertainties, which are prompting companies, including those in IT&amp;C, to be more cautious and reduce their operations. In fact, net job creation in IT&amp;C turned negative in May 2024 for the first time since 2011, although with a slight decrease. Reports have shown that 8 of the top 10 IT employers reduced their workforce in 2023. Other indicators, such as Eurostat's hiring intentions, also reflect increased caution among local companies regarding expansion, not just in IT but across the entire economy.”</p>

<p>However, according to Coșconel, the lack of new deliveries in 2024 and 2025 could stabilize the market and even lead to further rent increases for Class A offices in prime locations, with Environmental, Social, and Governance (ESG) playing a role in driving demand.</p>

<p><i>irina.marica@romania-insider.com</i></p>

<p><i>(Photo source: <a href="https://www.dreamstime.com" rel="noopener" target="_blank">A</a></i><a href="https://www.dreamstime.com" rel="noopener" target="_blank"><em>ndreasg/Dreamstime.com</em></a>)</p>