Nine-month review of real estate industry

30% of the announced retail area has been completed

In shopping center market, nine new projects have been completed in the first three quarters that total 260,000 square meters, 60% of it being built in Bucharest.

Earlier this year, some 600,000 were announced for delivery in 2009, which means that approaching the end of 2009 shows that only 30% of those announced projects were actually delivered.

“We estimate that at the end of 2009 the modern retail supply will reach 1.3 million sqm (represented by shopping centers and shopping galleries, excluding boxes). Bucharest’s retail supply is estimated at 500,000 sqm and includes the opening of AFI Palace Cotroceni, (photo) with a gross leasable area of 76,000 sqm”, Jones Lang LaSalle said.

Across Romania, 15 projects have been announced for 2010, which would deliver to the market another 440,000 sqm. However, consultants expect major delays in delivering the projects, due to financing constraints and low occupational demand.

30% decline in rental values

Rental negotiations concessions are widespread, although these appear to be leveling. Most developers have already agreed to temporary rental reductions of 20-30% off the contracted levels. Some developers have even granted temporary rent-free periods to retain occupancy levels.

Prime office rents across Bucharest vary between €70-90/sqm/month, while the rents for storefronts on high streets stand between €60-80/sqm/month.

“Some well-established retailers have succeeded to renegotiate existing lease contracts, but the most substantial negotiations are carried out in secondary cities where rent might be exempted for a certain period of time.”, said Jones LangLaSalle.

Vacancy rates for prime office market close to 13%

In prime office market, things don’t look any better. Nearly 260,000 sqm have been delivered in the first three quarters and another 150,000 are in the pipeline.

The modern office space supply is estimated at 1.4 million sqm, and 53,400 sqm of which have been delivered in the trailing quarter. The biggest office project has been the south tower of City Gate.

“It is important to note that in the first nine months of the year, the submarkets of Pipera North, Floreasca-Barbu Vacarescu, Pipera City and North submarkets of Pipera North accounted for as much as 65% of new office supply: 31%, 15%, 10% and 10% respectively”, the report outlined.

Leasing activity remained weak throughout the first nine months, at merely 69,000 sqm, namely 30% below year-ago period. The vacancy rate averaged 12.9% and 6% respectively for prime office market and 18% for Class B properties.

“Total annual take-up in 2009 is not expected to exceed 100,000sqm. Given the soft pre-leasing market, the vast majority of this leasing activity will occur in completed/delivered office buildings. A gradual market recovery is expected mid next year, largely driven by multinational companies interested in larger pre-leases”, said Jones Lang LaSalle.