Office investment rises sharply in CEE in H2 2009

Stronger demand for office space in Central and Eastern Europe (CEE) in the second half of 2009 compared to H1 2009 cushioned the full-year decline in the region, according to new research by CB Richard Ellis (CBRE). H2 2009 office take-up increased by 22% as compared to H1 2009, but total 2009 take-up fell by 33% compared to 2008’s record level. Downward pressure on prime rents eased across the majority of CEE markets in H2 2009, despite the fact that market fundamentals remain challenging in several markets.

CEE office investment turnover increased significantly in H2 2009, with institutional cross-border investors targeting defensive office properties in Prague and Warsaw and Moscow attracting strong local investor activity.

Jos Tromp, Head of CEE Research & Consulting, commented: 'Demand for office space recovered to some extent in H2 2009, demonstrating occupiers’ willingness to take advantage of favorable market conditions to reduce their occupancy costs by for example restructuring occupational portfolios. For this reason, renewals are accounting for a higher share of total leasing activity in many CEE markets, especially in Central Europe (CE), as occupiers secure better rental terms in their current premises. Reduced pipelines will probably result in lower gross demand in CE markets such as Prague and Warsaw in 2010, but higher net absorption should result in lower vacancy.'

Most CEE office markets remained occupier-friendly in 2009 as vacancy rates continued to rise, but this should start to change in some markets in 2010.