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OFFICE RENTAL MARKET OF EMEA COUNTRIES AND THE GEORGIAN PICTURE

EMEA Office Snapshot

Rental growth remains uneven across Europe, but overall the tone of rental data appears to have improved in H1 2014, along with the economic outlook. Of the 54 office markets monitored, the majority (29) exhibited no change in rents (32 last year), while 17 reported increases (9 last year). In contrast, 8 cities (13 last year) saw reductions. A number of trends were apparent:

  • Even if only marginally, prime rents moved ahead in a number of Southern European markets like Madrid and Lisbon, ending a correction which in Madrid’s case had lasted since 2009.
  • The upward trajectory of rents over the last 18 months underscores the recovery of Amsterdam’s prime office district, amid an increasing gap between primary and secondary markets in the Netherlands.
  • The German office market continued to show strength, against expectations of rental growth moderating. Stuttgart registered the largest jump (+25%) in prime CBD rents, while Munich saw the seventh consecutive increase since H2 2010, on a half-yearly basis.
  • London is expected to continue to lead the rental upturn. While prime rents were unchanged in H1 2014, dwindling supply and growing occupier confidence is set to feed into an increase in rental levels in the coming months. As the UK economy continues to power-forward, rental growth is also filtering through to regional office markets, with increases in Manchester and Leeds.
  • Reflecting the healthier state of the office market, Dubai prime rents continued to rally and are now almost 20% up on their cyclical trough; though still some way off their pre-crisis peak (-40%).

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Tbilisi Office Market

Total office space in Tbilisi is 912,367 m2, of which 36% (328,598 m2) is modern office stock. 54% of modern stock is leasable. Traditional stock is distributed equally between leasable and owner-occupied offices.

Supply of office space has been growing since 2008 and further growth is expected, because several business centres will open in nearest future and some organizations are going to build office buildings for themselves.

The share of office spaces located in A class business centres in total rented space is 7% (29,035m2), A-, B+ and B class offices occupy 7%, 23% and 1% respectively. The biggest share (42%, 200,000 m2) is D class offices, under which offices in apartments and old Soviet buildings are considered.

The office market is not well developed in Georgia. The least prime office stock is in Tbilisi among CEE cities. The biggest stock is in Warsaw (4,304,930 sqm). Average modern office stock per 1,000 inhabitants in CEE cities is 1,436 and in Tbilisi it is only 293. By comparison Bratislava has almost 3,500 sqm available per 1,000 inhabitants.

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The office real estate investment market in Tbilisi is in an early stage of development. Institutional real estate investors are not active in the country and accordingly, large investment transactions were not recorded on the retail real estate market. The estimated prime retail yield in Tbilisi is minimum 12%, which exceeds average CEE figures significantly.

The highest rents in 2014 are achieved in A class business centres ($22), next come A- and B+ with average rent of $15 and $14 respectively.

The prime office rent in Tbilisi is around USD 21 per sqm. The figure is the same as CEE average.

Along with the development of GDP and the number of registered companies, demand for office space has increased. With the number of new international brand entries in recent years, demand for modern office stock has increased and new modern office centres with total space of about 62,000 sqm are under construction.

www.colliers.com/georgia

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