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DESPITE THE LOWEST RENTS IN THE EU, DEVELOPERS ARE HAVING TO FIGHT FOR EVERY CLIENT

Only the strongest will survive

MANY new office buildings in Bratislava have an occupancy rate of just 60 percent or even less. Insiders say that although the conditions for increased demand have been in place for some time the boom is not happening.

MANY new office buildings in Bratislava have an occupancy rate of just 60 percent or even less. Insiders say that although the conditions for increased demand have been in place for some time the boom is not happening.

On the contrary, talk has turned to the stagnation of the office market in Bratislava and the virtual non-existence of such a market in other parts of the country.

The number of new offices and administrative centres in Bratislava took off a few years ago. In the 1990s the capital was suffering from a shortage of first-class office premises and developers thought they saw a great opportunity. However, since then, the supply of office premises in Bratislava has significantly outstripped demand.

According to Marek Ďurkovič, real estate analyst from developer J&T Financial Group, developers in Bratislava are permitted to build from 40,000 to 50,000 square metres of A-category office space each year.

This fact meant too many developers wanted in on the action and the result is an over-provisioning. "That is why during the last year, supply surpassed demand and there are more and more unoccupied or only partially occupied buildings in the city," said Ďurkovič.

Analyst Radoslav Beko from HB Reavis Group added: "Currently, the market for office premises in Bratislava is experiencing huge stagnation. Many administrative buildings have less than 60 percent occupancy and they have to fight for each client."

Developers believe Bratislava has a favourable environment and advantageous rents that should be attracting companies in droves. Nevertheless, nothing is happening.

"The tax reform, accession into the EU and cheap labour, together with low rents, are the preconditions for a possible increase in demand," J&T's Ďurkovič said. However, demand is not moving, he added.

HB Reavis' Beko agreed that despite Slovakia being a new EU member, new clients are just not coming. "Developers are currently experiencing a recession which should last for a long time. Only the strongest will survive."

The only significant movement is from existing clients transferring from old buildings into new ones.

Bratislava offers the lowest rent for office space in the EU, including the Visegrad Four countries. Analysts do not expect prices to rise in the near future due to both the stagnation in the market and the low purchasing power of Slovaks.

Prices should go up only gradually, according to the rise in Slovaks' living standards.

"On average, the price per month for A-category premises in Bratislava is €12 to €14 per square metre. This is roughly the same as in Budapest. Such premises are rented in Warsaw and Prague for €15 to €19 per square metre a month. Older EU member countries have more developed real estate markets and the prices there exceed €25 to €30 per square metre a month - depending on the city. Prices can be two or even three times higher in some older EU countries," Ďurkovič said.

"The price range in Bratislava is €7.5 to €14 per square metre a month depending on the standard of premises. Compared to other EU countries the price is low. If new premises continue to be built in Bratislava, the price will move further down. Given current trends it is reasonable to expect prices to be no higher than €10. In other towns than Bratislava the price is lower than €7.5," explained Beko.

Analysts agree that firms should be able to find office space in Bratislava at reasonable rates. That is quite different from the latter part of the 1990s when there were almost no modern premises and older buildings were expensive.

Client expectations are high so developers need to make a great effort to satisfy them and fit the offer to their needs.

"Each company has its specific needs. Renowned foreign firms require representative premises. The newest buildings in Bratislava that have modern heating, lighting and air-conditioning systems are fully occupied, mainly by international IT and pharmaceutical firms.

"There are also premises that do not fit the A-category, but are still too expensive for local companies. Such firms usually have offices in older B-category premises," said Ďurkovič.

Ďurkovič stressed that to get full occupancy it is not just the standard of the building that matters but a combination of factors, including location, transport connections, price, as well as standard of premises.

He thinks that even with the market as it is today experienced developers can get occupancy rates of 90 to 100 percent.

Firms operating in the financial sector are mostly interested in premises in the city centre. However, many companies are trying to avoid problems with the traffic situation in the city. He thinks that the area on the banks of the river Danube where there are already big plans for new developments might become very interesting indeed.

Beko added: "Today, everything depends on rent, accessibility, parking facilities and the standard of buildings.

It is possible to find premises with very favourable rents of a very high standard. But definitely, clients now prefer new buildings before old ones and they are moving out of the [city] centre. "

Insiders do not expect the recent huge production investments, such as PSA Peugeot Citroen or Hyundai/Kia, will encourage the office premises' market in Bratislava or other parts of Slovakia. Their arrival will, for sure, influence the demand for production and storage premises as well as apartments but they will not touch the office premises' market.

"The arrival of the carmakers will push up the demand for production and store premises around the future plants. Such investors build their administrative premises as a part of the future plants. Volkswagen in Bratislava is an example. Its impact on the demand for office premises in the city was minimal," Ďurkovič said.

"All such companies build their administrative premises within their own investment and development projects.

However, in some of these localities prices for apartments and land went up dramatically," said Beko.

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