Local building costs continue to fall in 2011 aa‚¬a€œ EC Harris report

The recession that has hit Romania is gradually easing, although the real estate sector is still feeling the pain. According to Kelly Herbert, commercial manager for EC Harris, a built asset consultancy, Romania will always remain attractive due to its skilled and relatively inexpensive labor force and good cultural links with Western Europe.

Investors are looking for prime office developments in areas like Victoriei Square, Barbu Vacarescu and Aviatorilor Boulevard, which have good public transport links. At the moment, five UK investors are planning to develop five affordable housing projects, with homes costing from EUR 60,000-70,000, to be included in the Prima Casa loan scheme. The government has issued 45,000 guarantees for accessed financing worth EUR 1.82 billion.

The latest annual International Cost Comparison report for 55 countries issued by EC Harris sees Romania fare relatively well in the region compared to the UK benchmark line. Construction prices are 50 percent cheaper in Romania, although they are 10 percent cheaper still in Bulgaria, Hungary and Ukraine. However, costs are 10 or 20 percent higher in Poland, Greece and Croatia.

In Romania, data for this year show that building costs for high-end luxury developments are in the EUR 850-900 range per sqm. For basic Prima Casa projects the figure is 400-450 per sqm. Retail developments run from EUR 700-900 per sqm. Class A office developments are in the EUR 800-900 per sqm zone, while local industrial warehouses cost EUR 320-450 per sqm. The figures exclude land costs, professional and legal fees, and VAT.

Residential developments are targeting the affordable housing market, while the construction of luxury compounds is almost non-existent and restricted to exclusive areas. Industrial developments have remained stable as this type of work is recession-proof. Tender prices are very low, as contractors are reducing margins just to keep their businesses afloat. Herbert says that the commercial office space market is still ticking over.

Investor sentiment improved in the first half of 2011 with more interest in new projects, but the specter of further turmoil in the market has brought the fear factor back to their decision making. Herbert says that the scale of toxic assets that banks are currently holding is quite large. Potential investors have enquired about these toxic assets which can be repackaged and returned to the market.

Herbert concludes that developments should be planned with caution and at the right pace. Investors are advised to acquire good market information and be careful when handling large developments. Building one apartment block and seeing how it does may prove to be a better strategy than starting all the developments at once.

EC Harris Romania manages residential projects worth approximately EUR 200 million. The company is handling the development of Marimito Shopping Center Constanta, totaling EUR 100 million. The consultancy manages industrial development projects worth EUR 12-15 million and EUR 5 million of retail projects.
Two office fit-outs of under EUR 1 million each add to the company’s portfolio in Romania, which also includes technical consultancy.

Ovidiu Posirca