The total local real estate investment volume is expected to amount to between EUR 600 million and EUR 800 million by the end of this year, say pundits. While this will be down by as much as half against the previous year’s record level, investment activity is more diverse with new investors testing local waters and a wider range of properties catching their eye, according to market representatives.
Real estate investment fund New Europe Property Investments (NEPI) announced at the end of August that it had bought the Auchan Titan commercial center in Bucharest from Aberdeen Asset Management AG for EUR 86 million. Indeed, August turned out to be a busy month with German investment fund GLL Real Estate Partners also announcing it was in the process of acquiring the Floreasca Park office project in Bucharest from its developer Portland Trust for over EUR 70 million and Belgian developer CTP buying the Prologis Park Bucharest A1 logistics project near the capital. After rather sluggish activity in the first semester, all this was welcome news for the local real estate investment market.
Overall, the value of new real estate acquisitions closed in the first semester of this year amounted to less than EUR 100 million, but real estate pundits are confident this will pick up sharply over the next few months. “We estimate a total investment volume of about EUR 600 million to EUR 800 million should all the deals presently being negotiated be finalized,” Laura Dumea-Bencze, head of research Romania & CEE research analyst with CBRE Romania, told BR.
This means the remainder of 2015 will be even busier for the local real estate market with several new transactions like the one closed by NEPI being inked.
Less but more
Even with the total investment volume reaching EUR 800 million in 2015, this would still be well below last year’s record level. The investment volume in real estate assets reached a whopping EUR 1.2 billion in 2014, up from EUR 300 million the previous year and the highest level since 2007. But industry representatives say that this comparison alone is not relevant to the overall state of the market.
“The transaction volume registered in 2014, of approximately EUR 1.15 billion, was the second largest ever recorded in Romania and the biggest since the financial crisis, so it is a challenging benchmark. This volume was heavily influenced by a few large transactions such as the initial acquisitions of Globalworth and the takeover of 12 retail properties by Immochan, which are difficult to match,” Andrei Vacaru, capital markets consultant and the head of research at JLL, told BR.
A correction was to be expected in the first part of 2015 given the record investment volume reported towards the end of 2014, added Bencze. “There are however encouraging signs for the end of 2015,” she went on.
And while the total investment volume will nevertheless be lower in 2015, investment activity is more diverse this year with a wider range of deals in terms of type and size, said Vacaru. “This might not be visible in the transaction volume registered in the first half of the year, as many deals have slipped into the second semester,” he added.
Another difference this year is that there have been several transactions of around EUR 100 million each, which was less common in the past, Laurentiu Lazar, director of investment and valuation services at Colliers International, told BR. “This offer has generated fiercer competition in terms of attracting capital. This is a reason the market moved a bit more slowly than expected at the beginning of the year,” he noted.
The regional context
Romania is increasingly coming up on the radar of Western European and American investors looking at Central and Eastern European (CEE) due to internal as well as regional factors. And the overall perception is a positive one, pundits agree.
“The regional context creates both positive and negative implications for Romania. The country’s macroeconomic performance, yield levels, easier access to financing and quality of available products, both from a technical perspective and leasing terms such as rents, leasing periods and the type of tenants, are reasons to take the local real estate market into consideration,” said Lazar, adding that during discussions with potential investors real estate consultants often act as lobbyists for Romania as well. Less favorable factors are the proximity to Ukraine and the fact that some 13 percent of local banking assets are controlled by Greek lenders.
Yield levels are another differentiator. “Despite the favorable macroeconomic environment, there is still a major pricing gap between Romania and the main CEE markets, with prime yield levels at 150-200 basis points higher than those in Prague and Warsaw. The weight of money and the compression of yields in markets like Poland and the Czech Republic have prompted more investors to look at Romania, which is translating into the highest level of interest since 2008,” said Vacaru. Prime yields are currently at 7.75 percent for retail, the same as at the beginning of the year, 9.25 percent for industrial and 7.5 percent for office, each 50 basis points lower than the end of 2014, he added.
New players test the water
After investments in the acquisition of real estate assets were mostly split between two investment funds – New Europe Property Investments (NEPI) and Globalworth Real Estate Investments, which is controlled by Greek businessman Ioannis Papalekas – for the past couple of years, the last part of 2014 and the beginning of this year have seen new players investing in acquisitions.
One of the biggest names was Czech PointPark Properties (P3) which is controlled by TPG Real Estate and Ivanhoe Cambridge and which bought the Europolis Logistic Park in Bucharest last year. “Even though they had a local presence, names such as P3 and CTP could be considered new to Romania as they did not have standing assets in the country. Lonestar has a stake in GTC, but Phoenix Logistic Center is its first direct acquisition in Romania. And there many other investors actively assessing opportunities and likely to close transactions in the near future,” said Vacaru.
By the end of the year more new names could be added to this list and, more importantly, the market will witness the direct entrance of institutional investors, a much awaited moment, Robert Miklo, associate director of investment services with Colliers International, told BR. “This institutional capital looks for attractive yields such as Romania offers and it assumes the low ‘equity’ risk that local assets offer,” he added.
Another good sign for the local real estate investment market is that at present all types of projects – office, retail and industrial – are under negotiation. “We can also talk about a wide price range, from high-street retail properties valued at around EUR 500,000 to office buildings of over EUR 100 million,” added Lazar. The industrial segment in particular remains attractive and will contribute to the overall investment volume due to players such as P3 and CTP.
“Market volumes in 2014 were dominated by retail transactions (around 41 percent), followed by office. This year the trend has shifted towards industrial and logistic properties, with a large number of assets transacted or in advance stages of negotiation, including many of the key properties in this segment,” concluded Vacaru.