Athens office market contracted substantially during the crisis due to the constant pressure that the economy has been experienced. However, the small market base produced positive effects and 2018 was characterized from the increased interest of local and foreign investors, mainly coming through the improvement of the positive achievements in the Greek economy (GDP growth, exit of the adjustment program etc.).
For the moment the Athens office market is phasing though a strong diversification. The Grade A and B offices, mostly located in Athens CBD, Kifissias Avenue (the axis connecting the Athens center with the Northern Suburbs) and Syggrou Avenue (the axis connecting Athens center with Piraeus and the Southern suburbs) showed in 2018 an increase in rental levels compared to 2017 (the current prime office rents are between 14-20 €/sqm/ month depending on the area, the building quality, the parking space availability etc.).
The previously mentioned consecutive fall in rental values since the credit crunch in 2008, led to Grade A and Grade B office accommodation in prime locations becoming more affordable. The outcome of this imbalance created an increase in demand for Grade A quality space in prime locations and an excessive supply of Grade B by upgrading the space to the tenants’ requirements in return for rent free periods, prolonged escalation period and reductions in rent. As such there is little supply and high demand for Grade A and B offices in the city of Athens, especially in prime locations, while on the other hand there is large supply of and almost zero demand for Grade C and D office space.
Summarizing the main reasons for the increase in rents:
- The lack of new development projects resulted in the take up of existing quality stock resulting in higher rents.
- The lack of sustainable, high quality buildings that could match the new technologies and the requirements of today’s occupiers’ needs. Good quality office spaces located in the prime office areas are actually the exemption and that’s why the vacancy rates in the subject top three office locations in Athens have decreased over the last two years with both Grade and B stock exhibiting an increasingly take up trend.
- The conversion of self-contained office buildings, especially in Athens CBD, into other uses, like hotels, serviced apartments, student housing etc.
In overall, the Athens City Centre is still expected to achieve higher rents than other locations followed by Kifissias Av. which is the second preferred office market in Athens and in 2019, rental levels are expected to increase together within the wider financial growth of the economy.
The improvement in conditions in the Athens office market has also revitalized investment interest mostly for the acquisition of properties with good tenants by institutional investors like the Greek REICs, (REITs?) foreign private equity funds and local real estate investors.
The latter interest concerns high quality single assets or property portfolios and leads to the decrease of yields especially for properties in the three abovementioned prime office locations (around 7% – 7.75%), but also in secondary locations if the property is leased to a reputable tenant and the yields are approximately 100-150 bps higher than the prime ones (above 8%-8.5%).
The investment market has also been affected by the lack of suitable products, so the renewed interest prompted some interesting initiatives including refurbishment works, restructuration of old buildings and new constructions.
An interesting trend that is now affecting also the Athens office market is the Co-Working aspect, where companies could lease for a short time working spaces tailor-made for the modern business uses, which include the share of office equipment furnishing, telecommunications and other services. This is very common internationally because more companies need flexible working environments due to the fact that they have possibly (potentially refers more to the future) been instructed with short term instructions in more than one country, due to their employees’ involvement not being stable as well as due to the need for advanced technological support or multinational companies wanting to check the local markets before investing heavily in resources. In Athens more than 20 buildings have been converted to such kind of Co-Working Spaces offering services per employee, per day or even per hour and the demand is growing.
Of course as it has been mentioned the economic growth is crucial for a sustainable office market and so far the subject environment in Greece remains fragile and the office market could be affected despite the encouraging evolution of the last 12 months. The stabilization/ recovery signs depend also in the way the Banks will handle the NPLs portfolios and the continuation of the reforms in the diverse markets.
DANOS / BNPPRE