Colliers: Romanian real estate market ends the first half of the year with a favorable outlook

Large infrastructure investments, significant salary growth above inflation, a stable external economic context, and central banks’ victory in combating inflation are helping the Romanian real estate market maintain a favorable outlook. However, results are generally mixed, according to Colliers Romania experts in their market report for the first half of the year, set to be released at the end of the month. The first half of 2024 saw real estate transactions in Romania totaling 419 million euros, more than double the amount from the same period last year. The construction sector has reached historic highs, driven by massive EU fund investments and a quite active private sector.

The logistics and industrial space is also showing promising results, with leases continuing their migration to destinations outside the capital. Meanwhile, the retail sector continues its rapid development. In the land market, Colliers consultants observe lower interest, but anticipate large transactions in the future due to deals started in the past. In the office sector, demand remains relatively strong, despite limited deliveries.

“The economy is sending mixed signals. Delays in the EU’s Recovery and Resilience Plans, geopolitical uncertainty, and the uncertainties generated by the US elections, along with the prospect of significant tax tightening in Romania starting in 2025, are tempering optimism. However, there are reasons for a slightly positive outlook, especially given news coming from the consumer sector and given the large investments—both private and public—taking place in Romania. The local real estate market is influenced by these developments, but the impact varies for each sector. Prospects remain quite solid in the region, with environmental, social, and governance (ESG) criteria becoming increasingly relevant for real estate investors, banks, and tenants in the decision-making process”, points out Silviu Pop, Director of CEE & Romania Research at Colliers.

This year, Romania saw the best performance in real estate investments compared to the other five major economies in Central and Eastern Europe (Bulgaria, Czech Republic, Hungary, Poland, and Slovakia). This is a remarkable achievement, especially in a context where regional market activity was reduced, and transaction volumes reached one of the lowest levels in the last decade.

In the first six months of 2024, the volume of commercial real estate assets traded in Romania reached 419 million euros, more than double the 167 million euros recorded in the same period in 2023. Although the context remains challenging due to risk costs, prospects for 2024 are good, with potential interest rate cuts and signs that the market has reached activity and price lows in the West. Thus, the outlook for the whole year should see the market easily surpass the average for the previous decade, i.e. above 600 million euros.

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The first half of the year was also quite strong for the local industrial and logistics space market, with modern space stock reaching 7.3 million square meters. Bucharest accounts for just under half of the total, and developers have approximately 800,000 square meters of modern space under construction due to be delivered in 2024 and 2025. Infrastructure work continues at an accelerated pace, opening up new areas of interest for the industrial market, including production. The nearshoring/friendshoring trend remains valid and will continue to strengthen the production sector. Rental demand for logistics and production spaces decreased by approximately 29% in the first semester, to 342,000 square meters. However, Colliers experts emphasize that this does not necessarily indicate a dramatic decline in market activity but rather reflects a lack of very large contracts. The market is also in a completely different paradigm compared to the pre-pandemic period when rental volumes in a semester could be even less than 200,000 sqm.

In the office market, new demand was moderate in the first quarter of this year, and deliveries were nonexistent. Approximately 160,000 square meters of modern office space were leased in Bucharest in the first six months of the year, a slight decrease compared to the same period in 2023. However, new demand reached around 64,000 square meters, up 7% from 2023, but still well below past peak levels. The IT&C sector remains dominant, but demand is now more diversified, including other sectors. Colliers consultants also observe a growing gap between top buildings and older ones. Another aspect worth pointing out is the fact that deliveries will start to accelerate starting in 2026, but even then, the market won’t likely be seeing 200,000 sqm per year too soon.

The retail sector also remains attractive, given the transaction activity, the appearance of new brands, and the re-emergence of large schemes post-2026. Colliers consultants anticipate that the threshold of 5 million square meters of modern retail space will be exceeded in 2026-2027, from a current stock of 4.6 million square meters. Cautious expectations from the beginning of 2024 have been exceeded, with mass-market and discount retailers resuming accelerated expansion. Salaries are increasing by approximately 14-15% annually compared to 5% inflation, offering good prospects for medium-term consumption.

In the land market, 2024 is shaping up to be a strong year for strategic acquisitions in areas where investors are already active. Although the number of newly started transactions is decreasing, quite a lot of the previously initiated deals are closing, including ones involving significant land plots, suggesting that 2024 will be a good year overall. Amid this backdrop, owners are not too willing to offer opportunities to buyers, confident in the post-2025 market prospects. This confidence is supported by consolidations around large projects, a generous supply of land for mixed-use developments, and good interest from residential and retail clients.

Another major sector of the real estate market, the residential segment, is in a somewhat delicate balancing act given the rising appetite from buyers and the dip in new supply. On the one hand, house purchase intentions, as measured by Eurostat surveys, are near all-time highs, while, at the same time, purchasing power rising again coupled with interest rate cuts from the central bank should also help demand. On the other hand, Colliers experts note that both authorization and deliveries have dipped substantially in the first part of the year. This situation creates the premises for a more significant acceleration of housing prices over the medium term.

“Massive investments via EU funds (both COVID recovery funds and regular structural funds), along with an active private sector, have sent construction works near record highs. The competition between the private and public sectors, rising salaries, and elevated commodity prices have strained the market, leading to increased construction costs in Romania since the second half of 2023. That said, given that today’s investments support tomorrow’s economic growth, Romania’s medium- and long-term prospects in the real estate sector are promising. Even if there might be some less favorable news in the immediate future, the overall outlook remains bright”, concludes  Silviu Pop.