EXECUTIVE SUMMARY – MARKET SNAPSHOT
The local commercial real estate market showed solid signs of recovery during 2017 and until Q3 2018, mainly driven by renewed lease activity and investment in prime assets of higher specifications.
Activity in the office market was dominated by corporate lettings driven by relocations or expansions in better and more central buildings, renovations of existing occupied and semi vacant office spaces and acquisition of prime office space. The market also witnessed selected new office developments, as a result of the limited availability of quality office building stock on the main business district locations.
The corporate letting interest mainly came from new financial services and consultancy firms, technology start-ups and shipping companies. Rents for high standards office spaces in advantageous locations (A grade) experienced an upward trend due to the lack of available stock and new supply. This led landlords of well-located properties to start investing in the renovation of existing spaces, incorporating new technologies and adopting better efficiency standards.
In Athens, renegotiations of existing rents and relocations were recorded mainly in secondary office properties located near public transport, metro stations and main roads. This trend stemmed from the low and, in some areas, almost zero availability of prime office spaces. The lack of liquidity by certain landlords also led in the acceptance of attractive tenant incentives in cases where the needed renovation work would be carried out and paid by the tenant. Rents of well-maintained office spaces located in less central districts (B grade) increased in general, whilst rents of lower quality standards office space in less advantageous commercial areas (C grade) remained stable.
The main characteristic of the office space market remains the lack of high-specification and sustainable commercial buildings that meet contemporary standards. Due to its (lack of) quality, the available office stock continues to be characterized by empty spaces, reaching in certain locations vacancies of more than 25%. The latter relates in particular to aged office space in mixed-use buildings in secondary office markets. This is also because a very large amount of commercial assets was built before 1990 and the vast majority requires retrofitting, modernization and improvements on their functionality and efficiency. Good quality office spaces located in high visibility sites and very commercial roads tend to be the exception and it is not coincidental that their vacancies do not exceed 10%.
MARKET DETERMINANTS
We expect the office real estate market recovery to continue and start including certain secondary assets. Main market determinants for the years ahead:
- The aged building stock, the relatively limited number of resource efficient real estate and the gradual space take-up in higher specification properties have resulted in lower vacancies in prime offices. This is expected to lead to new developments in prime commercial real estate and more retrofit upgrades in the existing office building stock.
- The attractive cap rates compared to other European markets, coupled with the possible strengthening of corporate tenants interest for expansion or transfer to new more modern office space, could offer incentives to attract investment capital for upgrading existing or development of new modern office buildings.
- The exit from the economic adjustment program, which took place in August, is expected to improve the macro economic outlook and strengthen the country’s growth potential. This might lead to further investment in the domestic market, sustained demand for new corporate lettings in better office space and thus attract additional development capital in the local commercial real estate market.
- The active management of the major local banks’ NPLs and REO portfolios is expected to yield opportunities for further investment in the sector, predominantly through the sale of commercial real estate to private investors, willing to follow a more hands-on approach with targeted investments in upgrade capex.
- The rise of shared economy is changing local office space requirements. This is also driven by the presence of many small enterprises (SMEs) in the service sector and the arrival of new promising Greek startups in the broader ICT sector. We, therefore, expect the demand for co-working spaces with personalized services and flexible lease arrangements to increase and their space take up to spread notably.
For more information, you can download a copy of our published Athens Office Market report in English here and in Greek here
Our report got coverage in prominent Greek media coverage. You can have a look at the following GR articles in Kathimerini, Naftemporiki, Newmoney, Insider1 and Insider 2