Under the pressure of the economic crisis and the uncertainty around the impact of the austerity measures taken by the government a two-tier market has emerged in the Athens office sector, says Savills Hellas.

On the one hand, in the prime segment of the market (newly built, large floor plate buildings), there are some significant large-scale (5,000-10,000sqm or above) enquiries that in total exceed 120,000sqm, although this includes a number of requests that have been for a while in the market. This reflects the need for consolidation and rationalisation that most large companies are currently facing. At the moment there are ongoing negotiations for around 60% of the required space, which could lead to a healthy space turnover for the year. The explanation behind this market activity could lie in the fact that certain buildings and locations are becoming more affordable under the pressure of lower demand and running borrowing costs, thus satisfying some large enquiries that have been hanging for a while over the market looking for the best value for money solution.

Indeed, one of the main drivers of demand at the moment is the reduction of costs. This has shifted demand towards emerging office locations, such as E75 and Attiki Odos, mainly close to train and Metro stations ensuring good accessibility and visibility. Nevertheless the outcome of these discussions is uncertain as deals are taking longer to complete and tenants are pressing for lower rents. Moreover, in many instances occupiers are renegotiating their existing leases achieving attractive terms and thus avoiding relocation.

Average prime rents in the best office locations have dropped by less than 3% compared to the end of ‘09, while the supply of the type of buildings in demand – large floor plates, good location, efficiency – remains scarce. New developments are rare as financing has become very tight, and some existing schemes in the pipeline have frozen, while developers that acquired development sites lately will not commence construction before ensuring a pre-let.

On the other hand, the secondary (older buildings, smaller floor plates) and second-hand segment of the market is the one that is experiencing a more immediate and deeper impact from the recession, with rising levels of vacancy, reduction of rents and limited options for reuse after vacation. Size and location will determine the future of those buildings, while landlords will have to adapt to lower income returns.

To conclude with, we could say that it has become more than ever a tenants’ market, not only due to the weaker economic context and consequently demand, but also as a result of the new lease law introduced, which eliminates the waiver for early termination of a contract in existing leases and introduces a one year only minimum lease length in the new leases.