Demand boosts the office market

Growth prospects for the European economy are showing improvement in 2015, which creates greater business confidence in office tenants. This is already having an impact on the demand for offices, which increased by 4% year-on-year. The tightening supply of prime office space in Europe is causing prime rents to accelerate.

Demand for the best office premises is continuing to rise, with more companies recognizing the importance of being located in amenity-rich central locations, close to market peers and in the best properties, in order to attract the most talented employees – global real estate advisor CBRE pointed out in its recent European survey. In the City of London market occupier demand rose by 12% in the first quarter, and the West End experienced its most active start to a year in the last three. Meanwhile, the Spanish capital recorded its strongest first quarter for two years with 125,000 sq m of space acquired by occupiers. Compared to the same period last year, Western Europe has seen total aggregate office take-up grow by 4% year-on-year.

Budapest started the year stronger than the European average: compared with the first quarter of last year the leasing volume rose by 18%. The 12-month take-up is nearly a third more now on a year/year basis than in the same period in 2014. The vacancy rate fell to a six-year low, and all signs suggest that this trend will continue in the coming quarters. “Approaching half year, rental figures for the first half of the year are extremely strong, and we are experiencing a noticeable increase in the proportion of pre-leases”, Gábor Borbély, Head of Research at CBRE Budapest added.

Real estate agencies agree that the tenant market has become extremely active in Budapest. The driver of property related decisions of large companies is still portfolio rationalization, while tenants with smaller space requirements aim to reach a qualitative change in terms of the location or the technical parameters of the building.

„According to our forecasts, 2015 will be about preleases and a large number of rental transactions will be signed” - added Rita Tuza, Head of Research at JLL Budapest.

Prime rents in Budapest are stable at EUR 20/sq m/month, however this rental level can only be achieved in a few centrally located prime office buildings. Effective rents are unchanged in the Grade „A” office buildings between EUR 11-14/sq m/month and major rental incentives are still available. In 2015, less than 30,000 sq meters of

office space will be delivered, however, in 2016, the volume of development activity is expected to be higher with nearly 90,000 sq m of new office space.

“Companies understand that to prosper in today’s marketplace they need to provide office conditions that reflect the modern employee’s needs. Increasingly, this means centrally located, well-connected, amenity-rich work places that provide a destination space to stimulate collaboration and development. This is one reason why prime rents for the best locations are on an upward trajectory. The solid start to this year sets the expectation that a further upswing in the office market is likely for the year ahead”, Richard Holberton, EMEA Head of Occupier Research, at CBRE explains.