Office development pipelines across CEE fall by 30% since end-2008

The significant reduction in Central and Eastern Europe's (CEE) office development pipeline since the end of 2008 should create more investor-friendly conditions in certain markets, according to new CB Richard Ellis research.

In total, the CEE pipeline - which measures projected office space completions in the next 18-24 months - has shrunk by 30% since the fourth quarter of 2008. This decline should help markets to re-balance and create conditions for more sustainable vacancy rates in some markets and even cause supply shortages in certain Central European markets from mid-2010, the CEE Office Development Trends report says.

Pipelines across CEE are falling as completions outpace new starts and as projects already under construction are postponed or cancelled. 'There have been significant variations in office pipeline movements from market to market across CEE,' Jos Tromp, head of CEE Research & Consulting, said. In terms of sub-regions, Central Europe's pipeline has fallen the most, down 45% since the end of 2008; while Southeastern Europe's has been cut by 30%.

Looking at specific markets, Bratislava's pipeline has fallen by 62%, while Zagreb's more limited pipeline has actually doubled in this time. Moscow's pipeline has fallen less, by 20%, in line with some commentators' beliefs that the market will quickly rebound despite its current high vacancy rate.

Most pipeline space remains speculative in nature but this is forecast to change, Tromp added. '87% of the total office pipeline at the end of Q3 2009 was speculative, but this is likely to change'. According to Tromp, the proportion of pre-let pipeline space has stayed relatively stable. In 2009, this mostly reflects pre-lets signed in recent years. In the near future, buildings lacking significant pre-lets are the ones most likely to be postponed or cancelled. 'Tromp: Combined, this suggests that the occupational market will drive the office development market in the future.'