Office Space Yields to Reach 6% in Romania

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The costs related to the construction of an office building are 60% higher than five years ago primarily due to the current rising prices of construction materials, but also because of the shortage of a specialised workforce, believes Alex Van Breemen, manager of Cascade Group, the developer of Cascades Business Center office building in Bucharest cited by ZF.ro.

Cascade Group, the developer of Cascades Business Center located on Buzesti street, near to Victoria Square, has started construction on a second office building, Euro Tower, which is located on the intersection between Barbu Vacarescu street and Lacul Tei boulevard, in northern Bucharest. Investments in the project are estimated to be worth 60m euros, ten times the cost of Cascades Business Center, which two years ago was sold to Fabian Romania Property British investment group in a deal worth more than 12m euros.

Cascade Group is a branch of East and Central European Venture Capital, which is registered in the Netherlands and has experience both in commercial and residential development. Compared with the time spent developing the project on Buzesti street, the Cascade manager believes the main market changes are related to construction costs, tenants' requirements and capitalisation rates. As a result, construction costs are estimated to be 60% higher than 5 years ago, because of the international context and also the shortage of specialised labour. In addition, yields have also narrowed a great deal compared with the period when Cascades was developed.

"When the project is completed, we forecast an investment yield of 6%, which should translate into a price of around 80m euros," specified Van Breemen.

The Cascade manager also believes that a higher degree of sophistication from customers is a good thing because several developers tend to deliver buildings that are below a certain standard that should exist on the market. Real estate buyers should get annual returns accounting for only 6% of the investments in assets, considering that deals at the beginning of last year were closed at yields of 9% or even higher.

Euro Tower's structure includes 5 underground storeys, a ground floor and 19 storeys above the ground, which includes a technical storey. The project is designed to provide class A office space, covers an area of around 18,000 square metres and is one of the most important developments in the area. When completed the building will have a height of 80 metres and will be one of the tallest buildings in Bucharest.

The project is 40% held by another fund listed on the London Stock Exchange, European Convergence Development Company (ECDC), which is controlled by Charlemagne Capital. Euro Tower has been announced as the first "green" office project in Bucharest, which means developers are interested everything that can lead to energy saving.

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