Office rentals: tenants grow wiser
The office rental market has changed significantly in the past few years; tenants have become more familiar with current market circumstances and know that in Budapest things have turned in their favor.
The total Budapest office stock (including owner-occupied and speculative buildings) reached 3,145,467sqm in the first quarter of 2013, according to the Budapest Research Forum, which comprises CBRE, Colliers International, Cushman & Wakefield, DTZ, Eston International, Jones Lang LaSalle and Robertson Hungary.
The office vacancy rate now stands at 19.6%, indicating an improvement both on the previous quarter and on the same period of 2012. The lowest vacancy rate (15.3%) was measured in the south Buda submarket, whilst the highest vacancy level is still seen in periphery region (31.8%).
“During the past five years, rental levels and conditions have gone through a significant change,” said Anikó P. Kovács, property adviser at DTZ. “Landlords have become more flexible when it comes to retaining good tenants and attract new ones. Higher incentives and flexible lease conditions have become common market practice. This has caused a significant decrease in effective rents, as tenants are still in a strong negotiating position.”
“Today, post-crisis decline in rental prices has slowed for most of the buildings; however, the range of lease incentives are more complex and larger than 5-6 years ago,” said Erika Lóska, head of office and industrial agency at Jones Lang LaSalle. “In the wake of the crisis, decision-making by tenants is more conscious. Not only rents are compared, but also the cost of parking, the efficiency of buildings and operating fees. Also, on several occasion, the range of services has been extended by elements that previously tenants developed at their own expense (bike storage, changing rooms, showers, etc.),” she added.
Real estate market players – developers, service providers, and investors alike – have to come up with something very attractive to convince tenants. “We clearly perceive that the demand for category ‘B’ properties has remained intact,” said Gábor Székely, chairman of real estate investment company Appeninn Holding. “However, tenants’ requirements are constantly changing. If a tenant decides on moving on, in addition to competitive prices, flexibility on uniquely designed, quickly developed spaces, a quick decision, complete execution, and the sharing of the fit-out costs are equally important.”
JLL’s Lóska added that, “For agencies, a very broad range of services and providing those professionally and with a maximum reliability is essential. A consultant’s most important asset is its human capital, which needs to be continuously motivated and developed to retain.”
The value of the human element was a view shared by Kovács at DTZ. “The best surveyors know every corner of the market, are up-to date and adapt their services to the changing market.”
Last year only one mayor development was finished in the Budapest area: Skanska opened its Green House project in mid-December. It has attracted a diverse international tenant mix – both headquarters and shared service centers – and 66% of the building is leased already. Regarding the fact that other development projects are constantly lagging behind schedule and lacking prelease contracts, Skanska’s story is already a success on the Budapest market.
“At Skanska we self-finance our developments. This unique business model is a clear advantage when it comes to maintaining our market position in the current financial climate, and winning new tenants who look for the security of a reliable developer,” said Grzegorz Strutynski, managing director of Skanska. “We also believe that the demand for quality green offices is existing, and we will continue to offer them in our portfolio of sustainable offices. The built-in green technologies contribute not only to unparalleled energy efficiency and significantly decreased service charges, but also a healthy, bright and comfortable work environment,” he pointed out.
One of the new tenants in Green House is the Avis Budget Group. “When we decided to move, we compiled a criteria list and we weighed the factors,” said Lóránt Besnyi, head of finance and facilities. “That way, we filtered out at least half of the 58 applicants. However, it became clear very fast that if we don’t want to give up on some of our main criteria – primary location, attractive rental price, 6,000sqm on at most three levels and the possibility to increase the area, Green House was the only option. Moreover, when we made our decision, the building was already structurally complete, contrary to other projects we have seen only on paper.”
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