INTERVIEW - Belgrade's Office Vacancy Rate Set To Hit All-time High of 30% in 2010 - Colliers Intl

“Up until the crisis hit last year, supply and demand on the office space market went hand in hand. At the time, people had already made their plans for 2009 and 2010 and no one had anticipated the downturn that unfolded,” the Colliers International Managing Director for Serbia, Jovan Jovica Jakovac, told SeeNews in an interview.

“When plans are being made for new office space, investors take the projected absorption rate into account, in other words what percentage of this space will be occupied,” Jakovac said.

The overall vacancy rate for both Class A and B office space in Belgrade stood at 16.0% in the first half of 2009, Colliers said in its H2 2009 market overview.

The Class A vacancy rate increased from 11% in the second half of 2008 to 13.2% in the six months to June 2009. The Class B office space vacancy rate marked a more significant increase, going from 13% in the second half of 2008 to 20.9% in the six months to June 2009, the report said.

The net absorption within the new projects delivered on the market in the first half of 2009 has amounted to 18,200 square metres (sq m), or 56% out of the total new office delivery in this period. This is a 60% decrease compared to the total net absorption recorded in the second half of 2008 (48,500 sq m), and a 55% decrease compared to the first half of 2008 (40,600 sq m).

“No one expected at the time that the [investment] inflow would slow down and even go in reverse, that is, that companies would be downsizing or trying to keep their operations at the same level, but accommodate them within smaller offices,” Jakovac added.

The supply of office space in Belgrade will further exceed demand levels by the end of 2009, Colliers said in its market overview.

Currently, there are 202,000 sq m of new Class A and 98,500 sq m of Class B office space under construction and set for delivery by the end of 2010.

“Our initial forecast was that office rent rates will continue to fall by the end of this year, maybe until the first quarter of 2010,” Jakovac said, adding that rent rates hit a bottom in October.

A square meter of Class A office space in Belgrade currently rents at 15-18 euro ($22.5-$27) per month, down from 17-19 euro last year while Class B offices command rates of roughly 11 euro per square meter, down from around 14 euro last year, Jakovac said.

“The [rent rates] are reaching a level beyond which they can drop no further. There is a breaking point below which companies won’t go because of the loans they have with the banks, so the banks themselves won’t let them rent out space below a certain point that justifies the companies’ investment,” Jakovac said, adding he doesn’t expect rents to drop considerably in the future.

“There are many projects whose construction has been shelved because of forecasts that the rent rates will not go up in the next 12 to 15 months,” Jakovac said.

At mid-2009, the total Class A and B office space inventory in Belgrade amounted to 626,000 sq m. Class A office space accounts for 58% of the total, Colliers data showed.

($=0.6677 euro)