One United Properties continues to develop its Bucharest-based office portfolio which has reached an estimated value of almost €400 million. Property Forum spoke with Mihai Păduroiu, CEO of the Office Division of One United Properties, about the transformation in the office market triggered by the pandemic and the drivers of demand going forward.
What were the results of the One United Properties’ office division during 2021 in terms of occupancy rates and delivered projects? What is your outlook for this year?
During 2021, One United Properties’ office division retained its market-leading position for relocation transactions in Bucharest and has reached an occupancy rate of 80% for the development One Cotroceni Park Phase I (office and commercial spaces) and over 90% for One Herăstrău Office and One Tower.
The outlook for 2022 is to consolidate our market position and share and to reach full economic occupancy across the entire office portfolio.
How does One United Properties manage the inflation of costs related to construction materials and labour force?
Construction and labour costs are a major factor in our development equation, therefore have a large impact on our operations and represent a constant challenge. Nevertheless, the fact that we have internal know-how related to the full construction process, acting as a general contractor in all of our projects, guarantees to our clients that we hold strict control over the entire duration and avoid any major deviations from budget and calendar.
What are the office projects that One United Properties has under development at present and what is their delivery timeline?
At the beginning of this year, we have announced the handover of One Cotroceni Park Phase I, an office and commercial building with a gross leasable area (GLA) of 46,000 sqm. It was completed at the end of 2021. At the same time, we have already started the works for Phase II of the development, with a gross leasable area of 35,000 sqm, that will be delivered in the first quarter of 2023.
What is the overall value of the company’s office portfolio?
The overall gross development value of the office portfolio is almost €400 million and includes 136,000 sqm of office space, including One Cotroceni Park, One Tower, One North Gate and One Herăstrău Office.
Which industries are driving office leasing activity in your portfolio? Has the pandemic generated significant changes in the demand structure?
The office market has undergone a transformation since the beginning of the pandemic that is not necessarily negative. Companies analyse much better the location, the technical specifications, the quality of the building, essential things for bringing the employees back to the office in the safest possible conditions. The pandemic has accentuated the need for upgrades across all demand structures. I noticed that companies put more emphasis on the quality of the office and on sustainable certification, an aspect that had taken a secondary place before the pandemic.
Last year, One Tower office building has received from the US Green Building Council the LEED v4 Building Design and Construction certification, at the Platinum level, the highest level provided by this certification. One Tower is the first office building in Romania to obtain it. The LEED Platinum certification obtained by One Tower for the design and construction phase is completed by the WELL Health-Safety certification. Our desire is to develop sustainable buildings that offer a healthy work environment, with the latest integrated technologies and multiple benefits offered to tenants.
As for our portfolio, the companies that have chosen to join our office communities operate in business areas such as technology, professional services, engineering, FMCG, pharma, law, advertising, IT.
What are the benefits of integrating offices in mixed-use schemes for the developer and tenants?
The value delivered by the mixed-use developments is immense, especially during the urban revolution that we are living in when talent and residents alike look to access new certified technology-driven real estate, cut commuting times, and have near house amenities and facilities integrated effortlessly. Thus, for residents and tenants, the benefits range from time efficiency to access to high-end office and residential spaces, commercial facilities and, last but not least, being part of a community that shares the same values and occupations.
Mixed-use developments help create inclusion and generate real communities. In such ensembles, residents can benefit from housing, restaurants, services, schools, green spaces, cultural and entertainment facilities and much more.
One United Properties is one of the pioneers of the mixed-use development concept in Romania, being the most important player in the country in this regard. Through such innovative concepts, we see a significant opportunity to prevent urban sprawl and supports conscious urban planning.
How will the Bucharest office market do this year from the perspective of rent prices and prime yields?
There is a confirmed upwards trend in headline rental levels due to the increase in construction costs and an accelerated yield compression phenomenon due to the coming of age of our commercial real estate market.
How competitive is the office market in Bucharest compared to peer cities in CEE?
The Bucharest office market is by far the star of the region, as it provides unparalleled talent, fiscal benefits, top quality real estate and affordable market entry costs for any economic sector. In my experience, investors that make direct contact with the Romanian market are instantly seduced by the opportunities found here. We are big believers in Romania's growth potential and compared to other capitals in the CEE, Bucharest presents competitive advantages that cannot be found anywhere else.
Are you eying an office expansion in regional cities?
No. Our objective is to continue the same line of development, transforming the urban landscape and impacting the local Bucharest community in a positive way.
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