Stable prime rents, a slowdown in development activity, and occupier demand largely driven by lease renewals

• In Q2 2023, the CEE-6 aggregate gross take-up grew by 12% y/y and by 28% compared to Q1. The cumulative net absorption experienced, however, a downward trend.
• Office development varied across the CEE capital cities, but an overall deceleration in new supply dynamics is evident, not only by the declining 12-month rolling indicator of new completions in the region but also by the decreasing delivery pipeline currently under construction. Still, around 1 million sq m of offices are currently under construction, with 73% of this on a speculative basis. Budapest and Warsaw collectively account for 50% of the stock under construction in CEE.
• In Q2 2023, CEE capital cities saw a decline in vacancy rates compared to Q2 2022, except for Budapest where availability surged by 27%. Since Q4 2018, Prague consistently boasts the lowest office vacancy rate, while Sofia and Bucharest record the highest.
• In Q1 2023, prime office rent experienced a continued upward trend in all capital cities of CEE, except for Warsaw. Also, within each market, the rental gap has widened between various office schemes, subject to location, efficiency, ESG compliance, and other attributes.
• In Q2 2023, prime office rent in all CEE capital cities held steady from the previous quarter, except for Bucharest which saw further increases. On an annual basis, rental growth was observed across all the cities in focus, ranging from 2% in Budapest and Warsaw to 16% in Bucharest. Within the region, Prague commands the highest prime rent, followed by Budapest, while Warsaw experienced a more moderate increase in prime office rent during 2022. Sofia maintains the lowest prime in CEE. Rental rates vary significantly between office schemes within each market based on their specific location and quality attributes.