The last year was the best so far since the crisis for the local real estate market and there are reasons to be optimistic about 2015 as well, say pundits. BR hears insiders’ predictions for each segment and learns what new developments could lie ahead.
One of the main markers on the local real estate market in 2014 was that the investment volume reached a whopping EUR 1.2 billion to EUR 1.3 billion, up from EUR 300 million the previous year and the highest level since 2007.
This was the result of several large transactions being closed and it is unlikely that the same scenario will repeat itself in 2015, Andrei Drosu, research consultant at JLL, told BR. Nevertheless, the trend is positive and one major change this year could be the entry of new investors on the local market after it continued to be split between two players in 2014 – real estate investment funds New Europe Property Investments (NEPI) and Globalworth Real Estate Investments, which is controlled by Greek businessman Ioannis Papalekas.
“The country’s economic growth, its political stability and also the difference in yield levels between Romania and Western markets persuaded new players to look closely at local investment opportunities in 2014. Funds which a few years ago didn’t consider Romania a viable market are now active and looking for income-generating properties. This has also been fuelled by the availability of high capital volumes on Western markets,” said Razvan Sin, head of capital markets at DTZ Echinox.
Potential new investors in 2015 include both existing real estate players that haven’t made any recent acquisitions as well newcomers to the local market. They are interested mostly in office projects, not only prime projects but also secondary ones, he added.
As for why the scene continues to be dominated by only two players, lack of know-how about the Romanian market is the main reason, said Sin. “It is hard for them (e.n. newcomers) to learn how the local market works. For example, in the case of office projects, what scares them is uncertainty about sustainable rent levels given that new projects are being developed. Local players are so active because they not only have the funds but they also have this sort of know-how,” he concluded.
2015 new office stock remains constant, demand on the rise
Office was the most dynamic real estate sector in 2014 and it will most likely maintain the position this year as well.
Around 120,000 sqm of new office space is expected to be delivered in 2015 in Bucharest, similar to the volume delivered the previous two years, said Drosu. During the same time period demand has been constant at about 300,000 sqm each year while prime rents in Bucharest have maintained the same level since 2012 at EUR 18.5/sqm/month, he went on. The vacancy rate has decreased to around 13 percent and a slight fall is expected this year “as the new take-up will most likely exceed the new deliveries,” he added.
Overall, the outlook is positive. “In 2014 we took part in important pitches to lease office spaces for the 2016-2017 period (consolidations and expansions), which goes to show that business is growing and tenants are confident in taking up long-term engagements,” said Madalina Cojocaru, head of the office department at DTZ Echinox.
Companies from telecom, IT and outsourcing have been the main growth drivers in 2014 and this year banking is expected to have a more significant contribution as well.
Demand for retail space on the rise
Two major shopping malls are scheduled to be delivered this year in Romania – the 70,000 sqm GLA Mega Mall project in Bucharest which is controlled by New Europe Property Investments (NEPI) and the first phase of Coresi Shopping Resort Brasov (45,000 sqm GLA) developed by Immochan Romania. By comparison, in 2014 onlyabout 62,000 sqm of modern shopping space was delivered, marking the lowest annual level since 2006.
After four years during which most retailers concentrated more on consolidation and brand repositioning and less on expansion, 2014 saw a more dynamic evolution which is expected to continue this year as well, according to representatives of DTZ Echinox.
“We see increased interest coming from regional retailers, especially from Poland and Turkey, that have reached a peak on their domestic markets and are deciding to expand to Romania because of consumption similarities and a certain economic stability that has been confirmed over the past years,” said Sebastian Mahu, head of the property management department at DTZ Echinox.
Retailers such as Polish fashion group LPP, Debenhams, Marks & Spencer, Pepco and CCC are among the players thought most likely to open new outlets in 2015 and there could also be new names coming to the local market, says Drosu.
“Moreover, we might witness some important mergers and acquisitions, mainly in the food sector, and the revival of some existing shopping centers with poor performances through new asset management initiatives, refurbishments or expansions that will render them worthy competitors for the new generation of shopping premises,” he predicted.
Speculative developments awaited on industrial segment in 2015
The industrial segment experienced something of an effervescence in 2014 with over 180,000 sqm leased (100,000 sqm of which was in Timisoara) and a major transaction taking place – the acquisition of Europolis Park in Bucharest by Czech company PointPark Properties (P3).
“We are optimistic that this dynamic trend will continue in 2015: the market will enter a new phase of speculative developments and will settle into a more solid position after a cycle of more than ten years during which all phases have been experienced – from development to boom, maturing, fall and stagnation,” said Rodica Tarcavu, head of the industrial department at DTZ Echinox.
Drosu too believes that the industrial market “has strong fundamentals to positively surprise in 2015”. Several investment transactions are expected to take place as well as new developments or extensions of existing projects. All this is fuelled by the increasing demand for new quality spaces and by “the more aggressive stance of new investors coming to Romania,” he noted.
Residential market awaits its turn
“In terms of market dynamics and the number of transactions, 2015 has the premises to be the best year for the local residential market since 2008,”Adrian Erimescu, general director of online real estate platform Imobiliare.ro, told BR. One reason for this is that prices have stabilized and have even grown on certain segments, a trend that has been constant throughout the past 12 month, he said. Also, developers are investing more in the marketing of existing projects and are starting new ones which, although mostly small and medium sized developments, are better suited to the existing demand.
“At the end of 2015 we will definitely be able to say whether the residential market has entered a new cycle, a growth cycle,” predicted Erimescu.
One important development last year was the advance of the luxury residential segment, a trend that is expected to continue in 2015 as well, according to Mihaela Pana, head of the residential department at DTZ Echinox. “Some of the projects already under construction will be completed and others will be started. The number of clients that buy for investment purposes will be on the rise as they come to understand that prices are on a slightly increasing trend and this is the best time to buy high-end residential properties,” she commented.