• At the end of H1 2014 total office supply in City of Zagreb stood at 1,252,800 m² including A and B class competitive, owner-occupied and mixed-occupied buildings.
• Majority of office supply is located in city centre (including Central Business District, Centre and Business District East submarkets) while the least favourite submarkets are at city outskirts (Buzin, Lucko and Jankomir).
• New office completions in H1 2014 totalled 19,400 m² of space including VMD Kvart Strojarska building A (10,500 m²), Sigma (3,300 m²), and Sindikalni dom (5,600 m²).
• Total office activity in Zagreb in H1 2014 amounted to app 45,000 m² which isshowing significant increase of transaction activity and signs of market recovery. Nevertheless significant part of take up was generated by relocation of Hrvatski Telekom who relocated in Sky Office building tower with app. 18,000 m².
• Large part of the take up numbers remains due to lease relocation and renewals, with the BPO sector mostly. The demand for quality office space has grown from the beginning of the 2014. Major requirements in renegotiations included a decrease in rental rates or/and office surface and renovation or adaptation of office space.
• Encouraging are arrivals of new comers to the market; however they have shown a tendency of leasing predominantly smaller surfaces.
• There continue to be limited options for requirements above 1,500 – 2,000 m² in quality buildings, leading to potential upward movement in rent rates.
• Zagreb office vacancy rate dropped by 2.5% and at the end of H1 2014 stood at 14.50%. Total available stock in Zagreb at the end of 2013 was estimated at 181,650 m².
• The prime headline rent has been stable in last couple of years and currently stands at €15/m²/month. The average rent for the grade A buildings is slightly decreasing and currently stands at €12 m²/month. The secondary rent across the city is recorded between €9 and €12 m²/month. Prime headline rents are expected to remain stable, while for the average rent we expect that they will decrease gradually.
• A decrease in rent free period (2 months) has been noticed as well as an increase in the fit-out contribution (average of €120/m²). In order to attract tenants and increase occupancy rates, building owners have increased incentives for their major tenants. Some owners are offering a full free fit out according to tenant’s needs. Landlords continue to provide discounts and incentives such as a shorter lease term, lower rents for the first years, rent free periods, flat rent, fit-out contributions and more flexible contract terms reducing the net effective rent to a lower value compared to previous years.
• An additional 39,000 m² of office space is expected to come to Zagreb’s market in 2014/2015 period. New office arrivals in this period will include Poslovni Centar Adris (10,790 m²), Conditum office project (9,500 m²), VMD Strojarska (18,700 m²) and number of others. Poslovni Centar Adris will be the first office building in Croatian market with LEED green certification.
• As a result of the upcoming increase in supply we also expect a subsequent growth of take up activity with either stagnation of or minor changes in vacancy levels. We recorded a significant market activity at the begging of 2014 due the many lease expiries thus we expect a growth of gross take up activity and further market recovery due to a noted grow of demand and two significant announced relocations which will probably happened in H2 2014.
• Rents in office buildings of prime quality on prime locations are expected to stay stable due to a noted grow of demand. However, in older buildings especially in suburban areas we expect downward pressure on the rent levels.
• Demand will continue to predominantly come from IT companies and BPO’s.
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Source: Colliers Croatia