BR ANALYSIS. Offices and housing for the middle class dominate the market

In the context of a heated discussion taking place lately about the local real estate market, data on the first half of 2019 show that only four transactions of over EUR 10 million were closed during this period, and over 70 percent of the total volume of EUR 340 million was generated by just two transactions: The Office in Cluj-Napoca and Prime Kapital’s portfolio of shopping centers.

The first half of 2019 showed that there is liquidity in secondary cities for high-quality, institutional products, a fact supported both by the largest transaction in this time period, namely the sale of The Office in Cluj-Napoca, as well as by the fact that 70 percent of the volume total investments were directed to cities other than Bucharest.

“It is true that there is an increased number of transactions in various stages of trading on the investment market, which is likely to bring the market to its highest volume after 2014, to EUR 1.2 billion. However, buyers remain very careful and due diligence processes are very detailed,” said Andrei Vacaru, Head of Capital Markets at JLL Romania.

More than half of the investments made in the first semester were related to office buildings, a trend that we expect to continue in the next period, with offices remaining the most liquid real estate class at the moment.

In a regional context, Romania and the Czech Republic are the only countries that have recorded higher investments, while Poland, Hungary and Slovakia recorded investment drops.

In the first six months, the investment market in Central and Eastern Europe exceeded EUR 5.47 billion and was dominated by Poland and the Czech Republic, which total 80 percent of the investment volumes.

Price evolution

In the last 12 months, prices for industrial and office properties in Romania have increased (the yields in the industrial segment have fallen by 50 basis points and those on the office market have decreased by 25 basis points), while prices for retail have remained at the same level.

“The above evolution is in line with regional and global trends, where investors’ appetite is increasing for industrial and logistics projects, especially due to the expansion of e-commerce and implicitly of the spaces that serve online retailers, while the shopping centers’ traditional products are losing their attractiveness, especially in the case of by-products. It should also be mentioned that, in the context of the apparent market effervescence, there is a risk that the gap between the price expectations of buyers and sellers will increase in the next period,” said Vacaru.

Increased offer on residential spaces

The residential market has had an increase in the number of homes delivered, but the offer is located in big cities, mainly in Bucharest. According to Imobiliarium, the real estate exhibition with the largest number of exhibiting developers, the residential middle-class segment in Bucharest is the only one which is on an upward trend and maintains a sustained pace, as it is stable in terms of the quality-price ratio. Furthermore, over 80 percent of the developers present at Imobiliarium have offers that fall into the middle-class category.

“The market for new residential constructions has increased in terms of the number of housing units, with the majority focusing on the middle class, especially in the last two years. This tendency is also determined by the slowing appetite for purchases, respectively by the more sophisticated demands displayed by buyers, in terms of both budget and construction materials. Therefore, even though the statistics announce effervescence on the market, we can say that this is not felt at the middle class level, which, at the moment, is the most stable sector,” said Adrian Stanescu, Imobiliarium Project Manager.

The average budget for a home in this segment is between EUR 80,000 and 120,000, where factors such as location or built area must be taken into account. On average, the price estimate is about EUR 1,400 per square meter in Bucharest, relatively lower in the adjacent areas of Ilfov County, and in the next period the price change is expected to be minimal. At the same time, in relation to the geographical evolution of this segment, the middle-class areas that have developed the most over the last years are the North and the East of the Capital.

The average buyer in this segment is between 30 and 40 years old, married, interested in a two or three-room apartment, has a corporate job and an available budget of over EUR 80,000. Their procurement criteria first include the location, followed by the construction quality, the infrastructure – easy access, the surrounding facilities, such as markets, schools, hospitals, etc., and the price per square meter.

A nation of owners

It is not a surprise that people aged between 30 and 40 years old are the main buyers of new dwellings. On the one hand, they are the category with the highest incomes and they are likely to be starting a family. On the other, seniors tend to already have a home, since 96 percent of Romanian families own their own homes, according to the “Survey on quality of life” carried out by the National Institute of Statistics last year.

“More than half of households (60.9 percent) live in separate individual dwellings, with the proportion being strongly influenced by the rural environment, while the rest of the households live in buildings with several dwellings (37.9 percent). The buildings in which households reside are almost entirely of the detached houses type in the case of the rural environment (97.4 percent), while the urban environment predominantly features apartments in buildings with several dwellings (69.8 percent),” shows the INS survey.

There is also a need for additional space, bigger houses or apartments, since only 54.4 percent of dwellings have 3 to 5 rooms. Households residing in 1-2-room dwellings (43.2 percent) represent a significant share. If in the urban area a little more than half of households (56.3 percent) lived in small dwellings with 1-2 rooms, in the rural area more than seven out of ten households occupied houses consisting of 3 or more rooms.

Overall, 37 percent of all families obtained their housing in the 1981-2000 period, with households in the urban area being above this level (43.4 percent). In rural areas, over two out of four families live in homes built before 1980.

“It is also noted that the share of new housing, built after 2001, accounts for only 21.9 percent of the total, being higher in urban areas (26.5 percent) than in rural areas (16.6 percent),” the study shows.

Last year, the share of households equipped with a bath or shower was 73.6 percent, and the share of those with toilets was 72.2 percent. In urban areas, over 9 out of 10 households are equipped with baths/showers and toilets.

“In terms of residence, the differences are highly pronounced for both types of utilities, mainly due to the poor development of the public water supply system and the sewage and wastewater treatment system in rural localities compared to urban ones; almost half of the rural households benefit from the advantages offered by the existence of a bath and toilet,” INS reports.

Of these households, those of employees and self-employed workers (including employers) who had greater financial resources were able to provide the two types of utilities in a much higher proportion than the average for the rural environment.

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