The office markets of Central European capitals are growing dynamically: the number of new leases is on the rise, vacancy rates have hit record lows in several cities and demand for large office space is also growing. In light of all this it is no surprise that development activity is also heating up on the most popular markets of the region. We asked three major office developers to tell us which city in the region offers the most attractive development opportunities, how tenants’ requirements are changing and what makes Central European capitals different.
The full version of this article will be published in the next issue of Portfolio Property Magazine, to be distributed at CEE Property Forum 2017 in Vienna on 19 September.
Balázs Biacs, Head of Acquisitions, TriGranit
New office developments can be profitable in any Central European city, where there is stable or steadily growing demand for new office space, where investors are interested in new projects and there is no significant risk of oversupply on the market. A qualified and educated labour force with good language skills is the main premise for strong demand from tenants, but the presence of quality higher education and international airports are also important aspects. Cities like Krakow, Katowice, and of course Bratislava and Budapest, are attractive to well-qualified workers as they are among the most important educations centres of the region. The positive investment sentiment that characterises the region currently can be felt in every country in CEE. Significant transactions have been closed in the office segment in Romania, Hungary and Slovakia. In Poland, secondary cities have also appeared on the map of international institutional investors; cities such as Tricity, Krakow and Katowice have stable investment markets and they offer outstanding growth potential to investors. Even though Romania is perceived as a more challenging market and financing conditions are different than in the rest of CEE, our expectations are positive for the country. The Romanian office investment market is increasingly institutional but it is yet to see the depth of investors that are present in other CEE countries. Unlike in other CEE countries, there are no secondary office locations on the rise in Hungary and Slovakia, the capitals continue to act as the centre of the labour market.
Millennium Gardens by TriGranit
Jan Hübner, County CEO for Hungary, HB Reavis
Central European markets are now playing an ever increasing role and had the best-performing markets in Europe. Last year overall transaction volumes amounted to €10.7 billion, an exceptional increase of 35%, whereas Hungarian and Slovak markets grew even by 115% and 135%, respectively. In Poland, leases sustainable in the long term remain the key drivers. Transaction volumes in the Czech Republic have already reached their highest level ever. The Czech investment market benefited from investors seeking diversification from Poland. Record investment volumes were booked in the Slovak real estate market. Its strong performance is attributed to improving liquidity and attractive opportunities compared to other CEE markets. Investor momentum and the appetite for high-yielding products lead to something of a revival in the Hungarian real estate market. One of the major trends here is the increasing interest in the work-life balance of our developments’ end-users. Historic wage competitiveness remains an additional factor contributing to attractive rent levels for BPO/SSC operators in major CEE capitals. Currently competing, Warsaw and Budapest are trying to attract financial service sector activity from post-Brexit London. Supply still appears robust, so we foresee rising vacancy rates in Warsaw and Bratislava, which will very much remain tenants’ markets. However, lower vacancy rates are predicted in Budapest. The very low new supply in Prague pushes vacancy down.
Wing’s primary focus is on Budapest. The current property market fundamentals, including vacancy rates and demand in the near future support a healthy level of development. The Hungarian economy is growing, and Budapest is both the hub for the national economy as well as an increasingly important regional centre. Several years of reduced activity compared to other Central European capitals allow for ongoing sustainable levels of development. Budapest currently enjoys a comparative advantage as an investment destination further augmenting the attractiveness of development activity. Tenants in the region remain focused on both the efficiency and the attractiveness of their workspaces for their current and potential employees. This is particularly true in a strong employment environment where they are competing for the best talent, and „soft” elements are used as an additional incentive. Location remains key, both regarding public transport access and availability of services in the immediate vicinity. Finally, tenants are increasingly environmentally aware in all areas of their activities, and look for this to be reflected in both the buildings themselves as well as in the operation of these buildings. Until 2008 the CEE region (or at least the V4) countries were viewed as a homogeneous block. Today it is understood that they share certain key attributes and challenges, but it is also clear that their markets are strongly differentiated. The relative lack of activity in the Hungarian market compared to its neighbours several years ago represents an advantage today, as demand is strong and domestic and international investors are eager for opportunities.
Buchareast-based office project Floreasca Park has reached over 80% occupancy, following over 4,400 sqm of recent leasing activity. Leroy Merlin has leased 3,900 sqm, while IGEL Technology is occupying 515 sqm.
Henkel Romania has sold a 1,800 sqm property in central Bucharest, which served as its HQ, to a high-end residential developer. The deal was brokered by iO Partners.
The family shopping centre M1 Kraków, managed by EPP, is strengthening its gastronomic, service and sports offer. The group of new tenants includes Sports Direct, which is making its debut in the capital of Małopolska, as well as the oriental restaurant Asia Mama and the pet shop Maxi Zoo. In recent months, Cukiernia Sowa has also opened its doors to customers. MediaMarkt, McDonald's, HalfPrice and 4F, which presented an enlarged salon in the new BLACK concept, have decided to continue their cooperation with the Kraków facility and modernise their premises. All signed contracts cover over 6,000 sqm of space.
New appointments
Ewa Nowak, a commercial property valuer, has joined the Valuation Department of international real estate advisory firm Newmark Polska as Senior Associate.
Maciej Wieczorkiewicz is joining the Avison Young Technical Advisory team in Poland. Maciej is an experienced engineer with many years of experience in managing fit-out projects and investments in the commercial property sector. During his career development, he has worked for companies such as Made In Terior, TECAS Fitout and Colliers Define.
Tomáš Fabian has taken on the responsibility of leading the Czech commercial development team at Skanska as Executive Vice President Operations Czech Republic, while still keeping the current responsibilities as Executive Vice President Legal Counsel (CEE).
Despite major divestments, the CPI Property Group has not managed to reduce its debt to the extent that rating agencies would return it to the investment grade, making its debts enormously more expensive. Due to increasing financial pressure, the owner is willing to consider buyout offers, according to six independent sources, reports e15.cz.
The planned district around Florenc and Masaryk Station has taken another step forward. Prague councillors have approved two key changes to the zoning plan and a contract on contributions from the developer on Thursday, reports E15.cz.
P3 logistic parks has created the conditions for an innovative presentation and sales area in P3 Prague Horní Počernice, offering a thousand cars directly in the industrial park.
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