The private rented sector, a new business segment in CEE

The notorious fact that citizens in CEE countries are first and foremost owners rather than renters, is about to change. The unprecedented increase in residential prices coupled with current economic turmoil hardens the possibility to become a homeowner. With capital cities like Prague, Bratislava and Warsaw being in the top five least affordable European cities for their locals, the rental market emerge as a great opportunity and developers are not missing the beat.

Looking at the 2017 – 2021 residential investment volume in Europe, CEE-5 (Poland, Hungary, Czech Republic, Slovakia and Romania) claims only 1%, with 1.8 bn. Euro. Poland and Czech Republic are the main scenes for this type of transactions, jointly having 94% of the overall investment market since 2016, while Romania accounts 5%. The wide gap between Poland and Czech Republic versus Romania, Hungary and Slovakia can relate to each country’s development of private rented sector (PRS) segment and specific jurisdictions.

”Residential projects developed and designed for the core purpose of being rented are not a novelty anymore in CEE cities. The balanced positions between owners and tenants sustained by relatively flexible leasing laws, create an attractive environment for investors looking at private rented sector throughout CEE region. Moreover, an indicator of the maturity of this market is the connection between the value of GDP per capita and the percentage of people who own a home, values ​​that are usually inversely proportional.”, says Elena Serban, Senior Research Analyst at CBRE Romania.

At present, the CEE-5 capitals have an average GDP per capita of EUR 32,900. Transposing this in economic growth in the following years, CEE capitals could reach at the economic level of Berlin or Vienna today, having a direct impact on the housing market similar with what happens in Western cities.

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The financial crisis led to residential prices to drop in CEE-5 region until 2013. Starting with 2014 prices embarked on an upward trend in most of the countries, reaching in 2015 at pre-crisis level, except for Romania. Even though years of constant growth followed, the prices continue to be relatively low in some CEE markets. At the end of the first half of 2022, the average prices for the new units, when comparing values in the CEE-5 region, the most expensive is Prague with 6,100 Euro / sqm and the most affordable is Bucharest with 1,900 Euro / sqm. Prime rental rates are recorded in Prague and Warsaw, with averages up to 30 – 32 Euro / sqm / month. The housing price index is higher than the rental index in all five CEE capitals, trend maintained since 2010 that indicates yield compression with rents increases at a slower pace than value growth during the analyzed period.

The number of people preferring to rent in the residential market in Romania increased by 20% in 2021 compared to 2020

It is well known that Romanians prefer to live in their own houses, and Eurostat figures confirm this, indicating for 2021 a share of 95.3% persons who reside in their own households. Nonetheless, the percentage of persons who live in rental housing increased from 3.9% in 2020 at 4.7% in 2021.

In Bucharest and Ilfov region are forecasted to be delivered by the end of the year circa 21,000 residential units and another 20,000 units during next year. Starting with 2017 residential deliveries embarked on an upward trend but changes in construction prices and the delays generated by permitting in the capital city, marked a marginal decrease in the forecasts of new developments for the 2022 –2024 period.

The average asking price per sqm for new built residential units (built after 2000) could be found on an ascending trend with marginal quarterly changes, at the end of H1 2022 reaching at 1,900 Euro / sqm according to the offers from one of the largest websites with real estate listings in Romania. As concerns the rental market in Bucharest and Ilfov region, institutional developers and operators are scarce, the rental market being mostly managed by private individuals or small sized real estate companies with several projects in their portfolio. Based on the same data source, the average asking rent for new built residential units in this area ranges from 9 –10 Euro / sq m/ month for one room units up to EUR 12 –14 Euro / sqm/ month for four+ room units.

”In a country where most citizens prefer to live in a house they own rather than rent one, the residential rental market begins to take shape in the eyes of investors in a regional context. At present, players on the market are private individuals or small sized real estate companies with a limited portfolio, while institutional operators continue to be scarce. We expect that to change, with both developers and investors to tap on a new territory and recognize the country’s potential to be scaled and to develop such investment assets”, explains Elena Serban, Senior Research Analyst at CBRE Romania.