Office space market going through a mild correction

The office property market in Athens is going through a phase of correction but is not yet in danger of sliding into a state of excess supply, a report by UK real estate company FPD Savills says. «Take-up levels over the first three quarters of 2002 have fallen, compared to the same period in 2001. Most of the Grade A space that has not been absorbed is the highest priced accommodation. Price has become a priority over location for occupiers, who now have a wider choice if they are prepared to (re)locate to new, cheaper space outside the Central Business District (CBD) and off the prime, expensive axes of the city (eg Kifissias Avenue, Athens North),» the report says. It is common knowledge that there has been a decline in office space demand, both from the private and public sector, since mid-2001. Rents for so-called «Grade A» space have fallen an average of 8 percent since the beginning of the year. The reason the market has not fallen further is that most offices are occupied by their owners, a sign that the property market is not as developed as in other European countries. «The development activity is mainly driven by owner-occupiers. Around 75 percent of the schemes completed in 2002 are occupied by their owners. The remaining development activity is speculative,» says the report. There are two main reasons for the drop in demand: the uncertainty prevailing in the international economy and the protracted fall of the Athens Stock Exchange. As a result, several companies have delayed, or even shelved, property development plans. The prevailing attitude in businesses is one of cost-cutting. The cost of buying or leasing office space has now become the primary factor in the choice of new space. Location has become secondary, mainly because the available choices have increased over the past few years, and keep increasing. The new, cheaper space the report says companies relocate to is dominated by two axes: the Attiki Odos ring road around northern Athens, partly completed and scheduled for full completion at the end of next year, and the Athens-Thessaloniki national highway. The latter is favored by companies seeking big office spaces (over 6,000 square meters). There are many examples: Ernst & Young has already relocated to a building on the Athens-Thessaloniki highway, while Hellenic Technodomiki is about to do the same. The portion of the national highway along the Kifissos River, from the Kifissia exit to the junction with Pireos Avenue is expected to become the new location of choice for companies in the immediate future. The increase in empty office space, from 5 percent last year to 7.5 percent this year, also makes it uncertain whether all new space will be occupied. The report estimates that of the 90,000 square meters to be built in the next couple of years, only 30 percent have already found interested buyers. The report expects economic growth to average 3.5 percent in the medium term. The government’s goal of 5 percent growth «will be difficult to achieve,» it says, «mainly due to the delays in the structural reform of the economy.»