CEE Office Property Market
The office property markets in the CEE capital cities were marked by resilient occupier demand and increasing prime rents. The occupier’s activity was healthy in 2022: aggregate total take-up grew by 18% y/y, while net absorption was not only positive in all the cities in focus but increased by an impressive 81% y/y as the aggregate figure due to annual increases of the figure in Budapest (+1021% y/y), Prague (+213% y/y), and Warsaw (+187%).
Stock and Pipeline
In 2022, development activity in the office sector has demonstrated differing dynamics across the CEE. During the year, new supply was particularly high in Budapest (+517% y/y) and increased in Prague (+34% y/y) but slowed down in other capital cities in the region. Overall, the aggregate annual new supply in CEE in 2022 decreased by 11% y/y.
The office delivery pipeline remains significant with over 1.1 million sq m under construction in the CEE capitals, of which 62% is developed on a speculative basis. Budapest accounts for 29% of the total stock under construction.
The vacancy rates in Budapest and Bucharest were slightly higher in Q4 2022 than the figures in the previous quarter and a year ago, having softened in all other capital cities in CEE. In Q4 2022, prime office rent increased in Warsaw, Bucharest, and Sofia. On annual basis, rental growth was observed in all the CEE capital cities except for Budapest. Increases in construction and fit-out costs contributed to upward pressure on headline office rents, and the trend is expected to continue in 2023. At the same time, the rental gap has widened between the office schemes, subject to their efficiency and other attributes.
The office segment accounted for 43% of the total investment volumes recorded in the CEE both for the whole of 2022 and in Q4 of the year.
The acquisition of CA Immo Portfolio in Romania was the major office transaction reported in CEE in Q4 2022, while Google’s acquisition of The Warsaw Hub in Poland remained the landmark investment transaction of the year since Q1.
During Q4 2022, prime office yields were subjected to upward pressure across CEE. Except for Sofia, in 2022 prime office yields increased in all the capital cities of the region, with the most significant correction noticed in Budapest (+0.75 pp), as well as Prague and Warsaw (+0.50 pp).