Office market: About half of leases signed in Bucharest during first half of this year were renewals

Contract renewals accounted for approximately 50% of transactions, driven by uncertainty over hybrid work. Additionally, there have been 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.
 

The only major project completed this year is the AFI Loft, a 16,500 square meter office building above the AFI Cotroceni shopping center in the Centre-West submarket. In terms of new demand, i.e. 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 square meters from OMV Petrom as part of Genesis College’s headquarters project. Colliers points out that this is not a typical transaction, but a truly unique case.

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

“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 square meters, 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,” explains Victor Coșconel, Head of Leasing | Office & Industrial Agencies at Colliers.

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. This year saw the signing of the second-largest lease contract in Bucharest’s history, with Genpact renewing its lease for 29,000 square meters of space in Hermes Business Campus.

Before the pandemic, renewals accounted for an average of 28% of annual demand, dropping to 19% in 2011 and 22% in 2019. Although hybrid work did not trigger an “office apocalypse” as anticipated a few years ago, it has nonetheless led some companies to reduce their office space, notes Colliers consultants. However, since Romania did not initially face an oversupply issue in the market, this trend has not necessarily created a tenant-friendly market in recent years. On the contrary, some areas in Bucharest tend to lean toward a landlord-friendly market. According to Colliers, Romania’s largest office property management company, with nearly 600,000 square meters under management, employee presence has increased over the past year and a half, reaching about55% in the first part of this year, compared to around 40% a year ago.

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.

“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&C, to be more cautious and reduce their operations. In fact, net job creation in IT&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. However, 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. It is also worth noting that Bucharest does not have an oversupply of office space per capita. Additionally, companies are making efforts to bring employees back to the office more frequently, which could signal an increase in demand over the medium term,” concludes  Victor Coșconel, Head of Leasing | Office & Industrial Agencies at Colliers.