High take-up levels in the major cee office markets continues to run…

HIGH TAKE-UP LEVELS IN THE MAJOR CEE OFFICE MARKETS CONTINUES TO RUN AHEAD OF DEVELOPMENT COMPLETIONS SUPPORTING LOWER VACANCY RATES

The first six months of 2006 show signs of the CEE Office market maturing. In 2005 the underlying story for the primary Central and Eastern office markets ? Bratislava, Bucharest, Budapest, Moscow, Prague, Sofia and Warsaw ? was declining vacancy. As of Q2 2006, the aggregate vacancy rate in CEE has continued to decline, albeit less aggressively. Vacancy now appears to be stabilising at close to 7.6%, only 30 basis points lower than at the end of 2005. Take-up continues to go from strength to strength across the region, increasing in almost every market thus sustaining the falls in vacancy rates.

As of H1 2006, take-up has grown ahead of take-up during the same period in 2005 by 20.1% reaching 1.18 million sq m in total. This keeps take-up in line with new supply, which has added an additional 1.1 million sq m of new office space to the market over the same time period. This represents the most active development period in the region to date. There has been little difference in volumes of space built during either Q1 or Q2 2006. Collectively this helped to increase office stock levels by 15% across the region, reaching ca. 15 million sq m by mid 2006. By the end of 2006, the total stock figure should increase to 17 million sq m, as a result of almost 1.8 million sq m that is planned for completion this year.

Damian Harrington, Head of CEE Research at CB Richard Ellis, comments ?As a result of declining vacancy, rental levels have remained stable throughout CEE countries. Only Moscow, which has the lowest vacancy rate in the region has been experiencing consistent rental growth. Rents should remain stable throughout 2006 and could start to increase in certain locations in the latter part of 2007 if vacancy rates remain low. An expanding development pipeline, however, may act to reduce this potential rental growth despite signs of increasing pre-letting activity?.