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Strong take-up and falling vacancy rates in CEE |
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‘The aggregate vacancy rate in the main CEE markets declined every quarter in 2005, reaching an all-time low of 7.9% at the end of the year, a decrease of 273 basis points year on year.’ reports CB Richard Ellis in its findings recently published in CEE Office Market View Year End 2005 report.
The aggregate vacancy rate in the seven primary CEE office markets – Bratislava, Bucharest, Budapest, Moscow, Prague, Sofia and Warsaw – fell last year as a result of a surge in take-up and rather slow growth in new development completions.
Office take-up escalated in 2005, reaching an unprecedented 2.2 million sq m, an increase of over 22% year on year. Annual take-up increased in almost every CEE market last year.
Over 1.2 million sq m of new office space was completed in the primary office markets in 2005, an increase of only 2% from the previous year. Almost half of the new space was constructed in Moscow and over one third of it was completed during the last quarter of the year.
The total aggregate office stock in the primary Central and Eastern European markets reached 13.3 million sq m, an increase of 12% y/y. By the end of 2006, the total stock figure should increase to 15 million sq m, as a result of almost 1.8 million sq m that is planned for completion this year.
As a result of declining vacancy, rental levels have been hardening. Moscow is still the only market that is experiencing consistent rental growth; however, rents throughout the rest of CEE remained largely stable. Rents should remain stable throughout 2006, but could start to increase in a year if vacancy rates remain low.
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The development pipeline in 2007 appears to be relatively low, which could help to spur limited rental growth in some markets.
Cory Hrncirik, Head of CEE Research at CB Richard Ellis, commented, ‘The underlying story for the primary Central and Eastern office markets in 2005 was declining vacancy across the board. Such dramatic and universal declines in vacancy rates in the face of continuing new development are very uncommon, especially for an entire region of developing markets. The falling vacancy trend shows the strong interest that occupiers continue to have in the CEE office markets and buoys office rents in the region.’
Andreas Ridder, Chairman - Head of CB Richard Ellis Central and Eastern Europe, added: ‘The declining vacancy in CEE is one of the factors influencing the rapidly falling yields in the region. As vacancy falls, the prospects for rental growth increase, which in turn buoys investors’ confidence and lowers the risks associated with increasingly aggressive pricing for prime property.’ |
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