The office market activity in Romania showed limited signs of return to pre-pandemic levels in the first half of the year, as companies were still not sure when most of their employees would return to the office, according to a report by Colliers. Gross demand for modern office spaces contracted by nearly 10% year-on-year, to 112,000 square meters, while new demand was around 38,000 square meters, down by 15% at the end of the first semester.

“Colliers consultants noticed that organizations have already started strategizing, resizing and rebalancing their offices to suit the needs in a post-COVID world, and the fact that the labour market is recovering rapidly should protect the office market to some extent and particularly the prime office buildings, which have solid blue-chip companies likely seeing good returns,” the company’s press release reads.

Only 36,000 sqm of new modern office spaces were delivered in the first half of 2021. The completion of Skanska’s Campus 6.2 (close to 19,800 square meters) and Tiriac Imobiliare’s Tiriac Tower (16,500 square meters) are the major additions that took Bucharest’s modern office stock above the 3 million square meters level.

“As the initial assessment for 2021 was around 260,000 square meters of new modern offices, quite a busy second half is setting up, though some of the upcoming deliveries may very well end up being finalized in the first part of 2022 rather than the final months of this year,” Colliers said.

Sebastian Dragomir, Partner and Head of Office 360° at Colliers, commented: “Managers are still exploring their new post-pandemic way of working, with the mix between office and remote-work being decided from company to company. They are tackling their real estate needs with caution, and some are seeing a need for a lower office footprint in the future due to the hybrid work model. The lower demand in the overall market can be explained by the fact that there are fresh concerns about a new coronavirus wave, particularly amid the fact that Romania could be hit harder than most countries in the region on account of a much lower vaccination rate.”

According to him, between 10 and 20% of employees are back in the office constantly and “the long-awaited return to offices for at least 50% of employees will likely have to wait at least a couple of quarters.”

The vacancy rate increased to a seven-year high at the end of H1, to 15.75% from 11.25% in the previous year, the same report said. However, Colliers noted that the market is much more developed than in 2014, as the modern office stock back then stood at roughly 1.7 million square meters versus just over 3 million square meters presently.

“The Bucharest office market is in a bit of a challenging spot, and Colliers consultants appreciate that the effects have not been even. In fact, it is noteworthy that two of Bucharest’s newest additions - Skanska’s Campus 6.2 and 6.3 were sold to an investor for a post-2008 record yield of 6.75%. So, for some, the next few years will be business as usual, while others will suffer. The gap between old/less qualitative projects and new/up-to-par older buildings will likely widen on all fronts: rent, vacancy rate, investment return,” Colliers also said.

The consultancy firm believes that the challenging market and much higher construction costs will likely dampen enthusiasm for new developments. At the same time, deliveries from 2022 onward are likely to remain below 100,000 square meters/year, which should quicken the eventual recovery of the local office market.

“Colliers consultants see the undersupply of modern offices in Bucharest as an insulating factor over the longer term, and they would rather expect the modern office stock to start growing again in a few years; consequently, it could surpass 4 million square meters by the end of the new decade, and might even close in on the 5 million milestone, if no other (economic) crisis will show up on the radar,” the company also said.

irina.marica@romania-insider.com

(Photo source: the company)