Signs of Recovery on the CEE Office Markets

In the first half of 2021, tenants leased over 1.1 million m2 of modern office space across the capitals of the 15 CEE countries. The highest level of activity was recorded in Warsaw (249,300 m2), followed by Prague and Budapest, according to the ‘ExCEEding Borders – Office Markets & Business Services in CEE-15’ report recently released by Colliers.

The total modern office stock in the 15 CEE capital city markets covered in this report, reached over 29 million m2 at the end of H1 2021. New office supply in these markets during the first half of 2021 totaled just over 640,000 m2, with a further 2.2 million m2 currently under active development and due for delivery over the next 2-3 years.

Demand for modern office space
Kevin Turpin, Regional Director of Research for CEE at Colliers explains that “as a result of recent disruptions related to the pandemic, the biggest office markets in CEE in 2020 saw a YoY declines of up to -30% on average in both Gross and Net demand. The first half of 2021 has seen similarly subdued results, however, some markets, including Warsaw, have started to see green shoots of recovery.” In the first half of 2021, tenants leased over 1.1 million m2 of modern office space across the capitals of the 15 CEE countries. The highest level of activity was recorded in Warsaw (249,300 m2), followed by Prague (183,300 m2) and Budapest (172,900 m2).
“It is important to highlight that a great deal of demand, or occupier activity, across the CEE markets comes from the modern business services sector which is among the largest office occupier groups. To give an indication of how important or how large this sector is, if we assume an average of 10 m2 per employee, then the sector could occupy well in excess of 10 million m2, or the equivalent of ca. 35% of the 15 CEE capital city market stock. The spread of these BSS centers, however, is of course much wider than the capital city markets, particularly in the regional markets of Poland, Czech Republic and Romania,” he adds.

The supply of modern office space
The largest supply of modern office space is located in Warsaw (ca. 6.1 million m2), Budapest (ca. 4 million m2) and in Prague (3.7 million m2). The largest increase of new supply in H1 2021 was noted in Warsaw where developers delivered 10 office projects with a total area of 226,300 m2. Looking ahead, the largest volume of new, modern office space under construction at the end of H1 2021 was in Budapest (350,000 m2), Warsaw and Sofia.

Vacancy rates
The widest choice of available office space at the end of H1 2021 was noted in Sarajevo (30%), Tirana (16.5%) and Sofia (16%) following sizeable new deliveries relative to the size of these markets. The lowest vacancy rates at the end of H1 2021 were recorded in Ljubljana (4%), Zagreb (5%) and Tallin (7.3%).
Tamas Steinfeld, Head of Research at Colliers Hungary commented by saying that “the speculative vacancy rate in Budapest by the end of H1 was still the second lowest among the CEE regional capitals with 11.7% followed by Prague with 7.8%. This is more of a remarkable jump from the all-time low of 6.7% by the end of 2019 in Budapest. This increase is mainly attributable to the more significant new supply handed over during this period compared with the previous years and simultaneously the more modest demand, due to the uncertainties in relation to the coronavirus. Furthermore, companies had a wait and see approach during this period to assess their future office needs in light of the new home office scheme, which requires occupiers to re-think their approach for office areas both in terms of lay-out and required size in long term.”