Analysis. Romania’s real estate market prepares for busy 2018

Ovidiu Posirca 05/12/2017 | 16:01

With the real estate investment volume set to reach EUR 1 billion next year, consultants say the demand for projects will remain high across the board, with a focus on the office segment. The market might see more deals in niche sectors like hotels, while the overall attractiveness of Romanian property will also be bolstered by higher yields than the rest of Central and Eastern Europe (CEE).

The property sector will likely see a record year in 2017 in terms of investment volumes, looking at the last decade, suggested Horatiu Florescu, chairman & CEO of Knight Frank Romania, the
real estate consultancy, and Valentin Lupu, associate director, capital markets, at the same firm.

“In the first three quarters there was significantly increased activity in the Romanian real estate investment market, indicating the growing confidence in Romania’s macroeconomic environment. Also investor demand remained focused on top quality assets and some new investors have entered the market, while other already established investors continued acquisitions, thus sending positive signals to potential investors who are still reluctant to enter the market,” the representatives of Knight Frank Romania told BR.

In the first three quarters of 2017, the investment volume reached EUR 585 million, according to data from Knight Frank. The market could grow to EUR 1 billion by the end of this year, driven by the retail and office sectors, and backed by a significant volume of transactions in the industrial and logistics sectors. The consultancy points out that foreign funds accounted for more than 99 percent of the total investment activity on the local market.

“We are starting to see a significant increase in demand for hotels in Romania, which we have not seen before, even precrisis,” Andrei Vacaru, associate director, capital markets at JLL Romania, told BR. In terms of market trends, he said that liquidity in secondary cities is improving, while demand is still focused on prime properties, with secondary properties starting to grow as well.

“However, we see a significant gap between sellers and buyers in terms of pricing expectations. While demand is clearly increasing, it is mainly coming from investors trying to benefit from the yield delta between Romania and other CEE markets such as the Czech Republic or Poland,” said Vacaru.

In 2017, prime yields in Romania stood at 7.5 percent for office, 7.25 percent for retail and 8.5 percent for industrial, according to data provided by Knight Frank



Meanwhile, experts forecast an expansion of the office segment throughout 2018, which also translates into bigger surfaces delivered for each project.

Mihai Patrulescu, senior associate, investment services at Colliers International, says that typical office projects had a surface of more than 70,000 sqm in recent years, compared to an average of 20,000 sqm after 2009.

“Additionally, we believe there is increasing scope for liquidity from assets that are being traded for the second time. Overall, we expect liquidity on the office investment market to increase from approximately EUR 250 million in 2017 to more than EUR 500 million in 2018,” Patrulescu told BR.

Furthermore, the market is set to record large transactions due to the recent consolidation of portfolios, with the growth rate hovering at around 10-15 percent, adds Codrin Matei, managing partner, head of the office agency, capital markets and business development at Crosspoint, the real estate consultancy.

In the Bucharest office market, the area comprising Politehnica/Grozavesti will be targeted primarily by tenants in the IT and BPO sectors, say experts.

Simona Urse, associate director of the office agency at Crosspoint, suggested that the vacancy rate in the office segment will hover at around 8 percent, as the new deliveries that will follow in 2018-2019 will balance the demand.

“In their need for expansion, large companies will likely shift their focus towards regional cities like Timisoara and Cluj-Napoca, cities where currently, even with new projects announced, supply and demand are roughly at the same levels,” Urse told BR.

She added that there is a growing interest from companies in green and plaza type buildings (mixed function projects with access to food courts and retail areas).

Demand for office space will reach 412,000 sqm this year. In the retail market the increasing demand is fueled by the growth of domestic consumption, says Robert Paulson, head of investment properties at CBRE, the real estate consultancy. He says the strong economic growth will also have a positive impact in the industrial and logistics segments.

The Knight Frank representatives say that relocations and new demand on the market are expected to be the main drivers of office take-up, as tenants will be looking to move their headquarters/back offices or consolidate their operations into new premises and new players will be coming onto the market.

Most of the office deals in the first nine months were for spaces of over 5,000 sqm, holding a 46 percent share of the take-up.

“Headline rents are expected to remain stable over the next year,” said Florescu and Lupu of Knight Frank.



Posting the biggest result in the European Union, the Romanian economy expanded by 7 percent in the first nine months of this year, with economists saying the expansion was driven mainly by the increase of domestic consumption. This also generated more business for players in the industrial and logistics segments.

“Having in mind the strong GDP growth in Romania, which is primarily based on two factors: industrial production and retail consumption, demand for industrial properties such as logistics and production will continue to rise. We expect leasing activity to remain strong in the short and medium term,” Paulson told BR.

With high consumption, the retail segment is set to continue to attract investments going forward. In 2016 alone, the Bucharest market recorded deliveries of more than 100,000 sqm of gross leasable area. Cosmin Grecu, head of valuation and research at Crosspoint, suggested that developers will focus on retail investments in secondary locations, while the expansion of e-commerce will further decrease the need for retail space.

“Demand will come mainly from new players entering the market. Retailers will have to merge their online and offline presence in order to keep up with the changes in the consumer’s needs. The more and more dynamic lifestyle of the consumer will create the demand for all-in-one spaces, where work, shopping and entertainment combine,” Grecu told BR.

In the industrial sector, meanwhile, CBRE estimates that demand will exceed 500,000 sqm by the end of 2017. The industrial sector fared very well this year, with a current vacancy rate of under 5 percent in Bucharest and 2 percent at national level, according to Crosspoint.

“Most of the newly built space is preleased, a fact that encourages developers to extend their portfolios,” Emilian Podaru, head of industrial and logistics at Crosspoint, told BR.

The growth stories from the retail, industrial and logistics sectors look different if we take into account the residential segment, which is far more sensitive to financial decisions.

“As long as mortgage interest rates remain at current levels, demand will not be affected by the slight increase in prices and the trend seems to be just that, at least in the short to medium term,” Bogdan Iliescu, associate residential at Crosspoint, told BR. He went on to say that Romanians are gaining more interest in quality residential projects, but demand will largely remain stable for all kinds of buildings.


Real estate experts largely agree that Romania is in a good position to attract fresh investors on the market next year, but the stability in the political arena also plays an important role.

“The year to date shows an increase in the number and variety of investors from Belgium to Israel and beyond, particularly for value-add and speculative real estate. Given the parties presently in due diligence, we should expect several further new entrants. Enquiries from the Middle East and South African funds have been gaining pace over 2017 and we might expect further action from those quarters. Additionally, there are a number of Western European funds whose CEE focus is shifting further eastwards as supply tightens in more core markets,” said Paulson of CBRE.

Matei of Crosspoint adds that we might see more investment funds from the US and UK that are already looking for real estate opportunities, alongside players from South Africa.

“In order for the market to steadily grow, we need to see new investors, the feeling of loneliness being still present among the ‘usual suspects’,” concluded Matei.


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