Demand and supply
According to Cushman & Wakefield’s review of the office markets in the capital cities of Central Europe, the ranking of office markets by total office stock remains unchanged with Warsaw retaining the largest office stock equating to 4,1 million sq m, followed by Budapest with 3,2 million sq m, Prague in third place with nearly 3 million sq m and Bratislava in fourth position with 1,5 million sq m existing supply.
New released supply in the Central European region equated to 436,000 sq m for 2013, which can be viewed as stable, and was generally delivered equally in H1 and H2 of the year, down slightly on the new supply released in 2012 (nearly 460,000 sq m). The highest amount of new space was delivered in Warsaw (nearly 300,000 sq m), then Prague (nearly 80,000 sq m), followed by Budapest (33,000 sq m) and Bratislava (26,000 sq m).
Jonathan Hallett, Managing Partner of Cushman & Wakefield’s Central European Region, said: “The effects of the recession have clearly reduced the level of supply being released to the region, albeit on a disproportionate basis. However, as the market continues to recover we would expect these levels to increase over the next two years or so as occupiers become more expansionist in their occupational strategies and developers find it easier to access funding for speculative schemes.’’
Currently there is close to 600,000 sq m office space under construction in the CE Region which is planned to be delivered in 2014. This equates to a 27% increase in new supply compared to 2013.
“There is a general feeling of improved business confidence across the region and early indications of this feeding into a slowly improving office sector across the region. Bratislava, which remains the cheapest location in the region by some margin, together with a skilled, multi-lingual labour market remains attractive for footloose industries such as BPO’s,” says Andrew Thompson, Managing Partner, Head of Office Agency for Slovakia at Cushman & Wakefield.
“In Bratislava, the supply is at its lowest for the best part of a decade, with only 1 major scheme having broken ground for delivery in 2014/2015. We would anticipate that the vacancy rate, which is currently at historically high levels, will therefore reduce over the coming months,” Andrew Thompson added.
In 2013 renewals accounted for the highest proportion of all transaction types, equating to 37% of the total Central European take-up. New leases were second, at 33%, followed by pre-leases at 14%, then expansions at 10% and lastly owner occupied transactions at 4%.
Prime rents in the Central Business Districts of the four Central European capital cities remained stable, with the exception of Warsaw and Prague where they fell slightly this year and currently stand at EUR 25.00/sq m/month and EUR 20.25/sq m/month respectively. Prime rents in Budapest CBD have remained unchanged at EUR 21/sq m/month since 2010 whilst Bratislava’s headline rent of EUR 15/sq m/month remained unchanged since the end of 2012.
In comparison, prime CBD rents in many Western European markets are considerably higher and improving – as opposed to CEE where rents over 2013 have remained under noticeable pressure. By the end of 2013, London Westend has seen prime rents rise to €85/sq m/month and those in Munich CBD improved to €32/sq m/month. Nevertheless, Paris CBD accounted for a slight easing of prime rental levels, with the 2013 year-end value shifting to €56/sq m/month.
Note: The above stipulated rents are quoted on the basis of gross internal area.
The CE vacancy rate of 14.1% in H1 2013 was a five-year high, however by year end this figure increased even more by a few basis points to 14.3%. The Vacancy rate outlook is forecast to rise further across the region as new speculative space is delivered to the market.
The successes within the occupational demand show that there are some clear winners in the CE office sector. This is reflected in the investment market with high demand for iconic, landmark buildings such as Rondo 1 and Prague City Center as well as boutique buildings that are outperforming the market.
“The weight of new core international and domestic capital is spreading to Polish regional cities for best-in-class assets and Budapest has come back onto the radar in the search for strong value characteristics. We are also experiencing growing investor demand for first or second generation offices that are in excellent locations within Prague and Warsaw and have the opportunity to be repositioned. This will be a strong trend for the next 24 months. We can say that the office sector continues to be the dominant sector for investment activity in 2014.” said James Chapman Partner, Head of Capital Markets for CE region at Cushman & Wakefield.