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  • How the Romanian real estate market performed in 2019

    How the Romanian real estate market performed in 2019

    Crosspoint Real Estate has issued its latest market report- Romanian Real Estate Market 2019, an in-depth analysis of all market sectors including investment, office, industrial, residential and land markets.

    Following a period of considerable growth, Romania’s economic evolution has continued on the same trend in 2019, although at a slower pace. Preliminary data from the National Institute of Statistics shows a 4.1% GDP growth rate for 2019, 2% higher than the European Commission’s forecast and similar to the one registered in 2018.

    For the time being, the uncertainty surrounding the global and local economy makes it nearly impossible to assess the magnitude of the impact, but both optimistic and pessimistic scenarios indicate a serious decline in 2020, up to a negative growth, at least for the first half of the year.

    The investment market

    The market registered a total investment volume of 608.85 M EUR, a 41% decrease yoy. The largest recorded transaction was the sale of The Office project in Cluj-Napoca, owned by South-African investment fund NEPI Rockcastle, to Dragos and Adrian Paval for almost 130M EUR.

    The significant drop in volume is partially due to the fact that a few major transactions initiated in late 2019 are set to close in the first half of 2020.

    Because of the complexity of the acquisition processes and the recent unpredictability on all sectors of the economy, it is possible that further delays might occur.

    With a total volume of approximately 120 million Euro in the first quarter, the Romanian investment market had a similar start compared with the same period in 2019, when the volume of transactions was 117.5 million Euro. However, this volume is rather a result of market inertia, since most of the important transactions had already been initiated last year. An optimistic scenario puts the total volume of investments for 2020 at 750 million Euro, while a pessimistic one somewhere at 500 million Euro. Therefore, we do not expect the investment market to undergo a dramatic change in 2020 compared to the previous year.    

    Romanian investors have been the most active players in 2019, with a 35% share in the total investment volume, followed by South-African an US investors, with a 19% and 18% share respectively. So far in 2020 the large transactions have been carried out by established South-African and European investors, with national players still present, although acquiring smaller products.

    Prime yields in Romania are still around 7% or higher in all market sectors, among the highest in Europe. Office and retail prime yields range between 6.75-7%, while industrial prime yield is around 8%. Capitalization rates registered in the first three months of 2020 have maintained the same levels.

    In 2019, similar to previous years, the office sector continues to dominate the investment market, both in Bucharest and regional cities. An interesting aspect observed in 2019 is the fact that regional markets have attracted an important share of the office investments (32%), a sign that cities like Cluj-Napoca are turning into competitive alternatives for the capital city. The trend seems to continue in 2020 as well, with over 65% of the Q1 2020 investments made in the office sector, while the large industrial players have continued on with their expansion plans, in two transactions of over 40 M EUR.

    Office

    The office take-up in 2019 was around 377,000 sqm, 5% higher than in 2018, with West/Central West being the most desirable areas for companies, with more than a quarter of the leases. As a consequence of the emergence of Expozitiei as an office hub in the past three years, the area reached the second place in the take-up top, with a 16% share.

    The dominant industry remains the IT&C sector, weighing almost half in the total take-up, followed by finance/banking sector. Relocations accounted for 44% of the total leasing activity, with tenants looking for the newest and most modern office spaces.

    Around 55,000 sqm of office space were leased in Bucharest in the first quarter of 2020, an almost 50% fall in demand yoy. Taking into consideration the record volume of leases in 2019, the drop in demand was already expected and the current situation is adding a further pressure on tenants.

    As expected, due to the large number of new products delivered or under construction, relocations continue to account for the largest part of the leases (36%) and pre-leases make up for 17% of the total leasing activity. The IT&C and Finance/Banking/Insurance sectors are still the main sources of demand for office spaces (74% in the total leasing activity). Office spaces in the West/Central-West and Central areas were the most sought after in Q1 2020.

    Over 288,000 sqm of new office space have been delivered in 2019, the total office stock in Bucharest has now reached 3.19 million sqm and 13 new projects have been announced for delivery in 2020, adding 257,000 sqm to the stock. In light of the recent events, deliveries might be delayed or postponed until a more stable environment will allow the market to bounce back.

    Developments in infrastructure, such as the opening of the new M5 | Drumul Taberei-Pantelimon metro line, will create a favorable context for the emergence of new office hubs in Bucharest. 75,500 sqm of new office space in four buildings have been added to Bucharest’s stock in the first quarter of 2020: Ana Tower (33,000 sqm), Globalworth Campus C (32,000 sqm), H Victoriei 109 (6,000 sqm) and Mendeleev 5 Office (4,500 sqm).

    The prime office rents remained unchanged at 18-19 EUR/sqm in CBD, 16 EUR/sqm in the city centre, 13-15 EUR/sqm in the West and North and 10-11 EUR/ sqm in the South and East. The areas with the lowest vacancy rates are Floreasca/Barbu Vacarescu and CBD (2% and 3% respectively, compared to the overall 9% in Bucharest for 2019). Given the current situation, the vacancy rates will most likely go further up, even with fewer deliveries than initially expected, as tenants will have a more cost-conscious approach.

    Industry

    With regard to the industrial market, over 500,000 sqm of new industrial space have been delivered in 2019, which is an impressive 13% addition to the previous levels. Bucharest continues to be the largest market, with the West and North-West areas accounting for 40% of the total stock. Over 80,000 sqm were added in Q1 2020, mainly in the capital city.

    The capital city remains the target for demand, although the leasing activity has witnessed a slight drop compared to 2018 – a little over 455,000 sqm. One possible factor influencing the drop in demand might be the relocation to self-built facilities, another being the boost in relocations expected for 2020, caused by lease expires.

    The industrial leasing activity in Q1 2020 amounted to around 67,000 sqm, with a 60%-40% split between Bucharest and the western area of the country.

    In the following years it is likely that new areas will be developed, such as Constanta or Craiova. Production companies will choose to expand by building smaller, satellite facilities around their larger compounds. In the north-eastern part of the country, logistics companies will seek to open smaller hubs which can be supported by the existing infrastructure. 2020 will mark the development of industrial facilities in untapped areas such as Bacau. Infrastructure continues to be a challenge, with only 43 km of highway delivered in 2019, half of the official estimated number.

    Residential

    The series of macroeconomic changes such as the 3.8% inflation rate and the high EUR/RON exchange rate have affected the residential market in 2019. The surge in prices of new dwellings was caused by the increase in material costs (a 30% increase yoy in 2019), the lack of qualified workforce as well as the raise in the minimum wages, that led to a 25% increase in the workforce costs for developers.

    An all-time record for the Romanian residential market was the delivery of 15,000 units in Bucharest in 2019. While the southern area remains the largest market for affordable dwellings, western Bucharest is seeing a surge in prices and the North is becoming a mixed mid-class to upper-class area.

    The southern and western peripheries remain the cheapest (around 1,000 EUR/sqm), while in the Center-North prices continue to exceed 2,000 EUR/sqm.

    The raise in wages, especially in Bucharest, has resulted in a higher demand for residential developments within the city and in established mid to high income areas. Moreover, we can see a shift of demand from one-bedroom apartments to two-bedroom apartments.

    The Bucharest rental market continues to be one of the most profitable in the CEE region. The average rental yield is around 6% and a price/rent ratio of 17 years.

    As the most vulnerable to the threat of a downturn, the residential sector is also the most dependent on the economy’s quick recovery in order to keep afloat. In case of a positive outcome, deliveries might just be delayed for a short to medium period, but a more pessimistic scenario would be that some projects will not be able to recover from this sudden blow.

    Land

    As regards the land market, most of the acquisitions for commercial development (mainly retail) have been registered on regional and secondary markets, whereas Bucharest continued to attract investors on the residential segment, because developers of office projects due for delivery in the following three years have already secured their land plots in the 2016-2018 period.

    Due to the fact that available land plots in established areas have become smaller and scarcer, land prices have significantly gone up, nearly doubling in some cases compared to 2018.

    Given the economic slowdown expected for 2020, land investments, be it for commercial or residential purposes, are expected to be approached with foresight.

  • Bucharest is pivoting towards a tenant market for office buildings

    Bucharest is pivoting towards a tenant market for office buildings

    • The stock of modern office spaces in Bucharest reached nearly 2.7 million square meters last year, up 12% compared to the previous year.
    • An additional 700,000 square meters could be delivered over the next two years, which means a 25% increase in the current office stock, which will increase competition for attracting new tenants, shows the annual report released by Colliers International.
    • The tenants will thus be in a position of strength in negotiations, and vacancy is expected to climb upwards to 12%, maybe even towards 13%, by year-end.

    Over 365,000 square meters were rented in 2019, up c.12% compared to the previous year, representing expansions of existing leases, new tenants entering the Romanian market and relocations from the stock of modern buildings. At the same time, lease agreements for 144,000 square meters were signed for office spaces to be delivered in 2020 or in subsequent years.

    New office space delivered in 2019 reached about 286,000 square meters, nearly double compared to the 150,000 square meters delivered the previous year, but under the initial estimates of Colliers consultants of  360,000 square meters, as two large projects were postponed for 2020.

    Bucharest Center West submarket was the star

    The Center West submarket was, by far, the most active, generating close to 100,000 sqm of new leasable office spaces in 2019, so a bit over one third of overall deliveries, with other spaces spread around various submarkets in central locations, the CBD, but also Floreasca – Barbu Vacarescu.

    The biggest project to come online was the Globalworth-built Renault HQ in the West submarket (47,000 sqm), followed by Vastint’s Business Garden Bucharest (over 41,000 sqm) and Portland Trust’s Expo Business Park (over 38,000 sqm) in the Piata Presei-Expozitiei submarket.

    Outside Bucharest, projects totaling 94,000 square meters were delivered in 2019, three quarters being buildings built in Cluj-Napoca (37,000 sqm) and in Timisoara (35,000 sqm), followed by Brasov (15,000 sqm) and Iași (7,000 sqm). This year the stock of office space is estimated to increase by 150,000 square meters in these four cities representing major office hubs.

    2020 is set to be a good year for the Bucharest office market, with Colliers consultants predicting demand for around 320,000 square meters, of which 120,000 square meters net office space. As in previous years, IT and financial services companies will be the main drivers of demand in 2020.

    ”The wave of deliveries from 2019 is reduced this year to 200,000 square meters, but with a spectacular return in 2021, when developers anticipate a potential of around 500,000 square meters, a new historical record. Thus, competition is on the rise between developers, but with the owners of existing modern buildings, which lost via relocations, just last year, tenants occupying 140,000 square meters. The tenants will be the ones who will enjoy opportunities, because Bucharest is starting to become a tenant market for office buildings. There will be increased competition for attracting new tenants, including from older buildings, some in very good locations, but which were built by inexperienced developers or which have not been investing in technical upgrades. The vacancy rate could reach 12-13%, up from 10.5% in 2019”, explains Sebastian Dragomir, Partner & Head of Office Advisory Colliers.

    The rents for offices remain relatively stable, with prime headline still around 18 euros per square meter in Bucharest (and an average in the region of 14 euros per square meter), respectively between 11 – 14.5 euros per square meter in other centers in the country. Romania has an investment yield of 7% for the best office buildings (likely to come down further in 2020), while in the countries of the region the yields are even 3 percentage points below: 4% in Prague, 4.5% in Warsaw and 5 % in Budapest.

    From the landlord’s perspective, this normalization of activity is coming at a moment when deliveries are slowing down as well, with 2020 having some 200,000 sqm in new GLA planned; 2021 is looking more crowded, with around half a million sqm in new leasable areas promised by developers. Given the realities of the market, Colliers consultants would expect that a significant amount of this pipeline for 2021 to be pushed back, as not all developers may score a major anchor tenant.

  • The office market will be the star of the Romanian real estate investment market

    The office market will be the star of the Romanian real estate investment market

    2020 is expected to be the best year in the post-crisis cycle for the real estate investment market in Romania, after total investments worth 644 million euro in 2019.

    Deals worth at least 600 million euro could be finalized this year only in the office segment, which will be the star of the real estate investment market, supported by more attractive yields than in other countries in the region and a good macroeconomic performance, shows the annual report released by Colliers International.

    The 600 million figure for office deals refers just to investments in very advanced stages, so it could print well higher by year end; it also includes the NEPI Rockcastle portfolio sold to AFI Europe for in excess of 300 million euro, a deal signed late 2019, but expected to formally close in the subsequent months.

    The office market attracted more than 60% of real estate investments in 2019

    Last year, the office market attracted more than 60% of real estate investments, with Bucharest and Cluj-Napoca being the most dynamic cities. The year’s biggest deal was for The Office sold by NEPI Rockastle and local developer Ovidiu Sandor to the Romanian-owned DIY chain Dedeman, for roughly 130 million euro.

    Other major office deals included the purchase of America House in Bucharest for over 70 million euro by Morgan Stanley and ADD Value Management, advised by Colliers, from AEW, the acquisition of Phase III of Oregon Park by Lion’s Head Investments, for an estimated 57 million euro.

    Two other important deals involved the sale of Liberty Technology Park from Cluj-Napoca by White Star alongside the endowment fund of one of the top universities in the US, also brokered by Colliers International, as well as the transaction signed by Corporate Finance House Group, an investor with headquarters in Lebanon, that bought the Day Tower office building in Bucharest, developed by Day Group.

    Retail transactions represented 24% of total volumes

    Retail transactions represented nearly 24% of total volumes in 2019. The largest transaction, worth 113 million euro, was made by MAS Real Estate for 8 retail projects it had developed together with Prime Kapital.

    Another important deal was closed by Indotek Group, which purchased Promenada Targu Mures for an estimated 40 million euro.

    Industrial sector had modest impact

    The industrial sector showed more modest performance in 2019, accounting for under 10% of the preliminary figures, with CTP’s purchase of A1 Bucharest Park for around 40 million euro as the year’s biggest transaction.

    In fact, the local market of industrial and logistic spaces has the highest yields in the region, up to 8.25%, compared to 6.50% in Warsaw, 7% in Budapest or 5.25% in Prague.

    Poland remains region leader

    At Central and Eastern Europe (CEE) level, the local market attracted last year almost 7% of the total investment volume of about 13.4 billion euro.

    Poland remained leader in the region, where investment volumes accounted for 55% of the overall CEE6 total with a record-breaking ca. 7.4 billion euro, followed by the Czech Republic with a 24% share and Hungary with 13%.

    The office sector has dominated the 2019 activity, accounting for more than half of all volumes (51%), followed at quite a distance by retail (23%), while the sector of industrial and logistic spaces had a share of 13%.

  • Romania’s real estate transactions volume will exceed 1.1 billion euros

    Romania’s real estate transactions volume will exceed 1.1 billion euros

    The real estate investments volume will exceed 1.1 billion euros this year, transactions over 700 million euros being already signed or in due diligence process.

    This demonstrates the increased interest of investors for the local real estate market, even though last year the volume of transactions was only 683 million euros, below initial estimates. The volume of transactions recorded last year was influenced by the long process of analysis of the projects, the buyers still being very cautious to the investments they make in Romania.

    The increased appetite of investors is also reflected in the evolution of yields over the last 12 months, which compressed by 25 basis points for office and industrial assets, up to 7% and 8%, respectively. The trend will continue this year and is in line with what is happening in the region.

    “The spread between yield in Romania and Poland or the Czech Republic reach up to 275 basis points for comparable properties, which means that prices on the local market are significantly lower compared to the region, making investments in Romania more attractive,” explained Andrei Văcaru.

    Offices in Bucharest, the most liquid assets in 2020

    Given the ongoing transactions, in 2020 we expect a strong recovery of Bucharest, which could attract over 80% of the total volume of investments, compared to 48% last year. Secondary cities, which have become more attractive to investors in 2019, will drop in weight as there are fewer projects available for sale.

    By 2020, office buildings will represent the most liquid real estate asset class. Moreover, we expect an increase in the share of total transactions to 80%, from 60% last year.

    Noteworthy, the evolution of the hotel sector, which is becoming more active and where we expect in 2020 new transactions in the context where in the last 3 years no less than 11 sales of hotels were closed, both in Bucharest and in secondary cities.

    JLL was involved in transactions of over 325 million euros.

    The real estate consultancy company JLL was involved in 2019 in transactions of over 325 million euros.

    The most important projects in which JLL provided consultancy services in 2019, representing the sellers, are The Office (the largest sale of an office project outside Bucharest), Promenada Târgu Mureș and the sale of an emblematic building in Bucharest, the Oscar Mausgch palace (BCR ) from the University Square.

    “The performance of JLL’s Capital Markets team is important as it has successfully completed some of the most complex transactions on the market. The confidence given by the investors to the JLL team is the result of the work of many years, in which we managed to obtain real added value in the transactions in which we were involved,” said Andrei Văcaru, Head of Capital Markets JLL Romania.

    New sources of capital on the market

    The analysis of the origin of the capital allocated for property acquisitions in Romania shows a continuation of the diversification of the investors. Last year, local assets attracted South African, Romanian, American, Hungarian and Middle Eastern capital, and this year, we expect Western Europe and Israel to be the main sources.

    Morgan Stanley, Indotek, CFH and White Star are among the new investors who made acquisitions in Romania in 2019.

    Record volume of real estate transactions in Central and Eastern Europe

    And at the regional level, the year 2020 is expected to be a reference, after the absolute record registered in 2019, of almost 14 billion euros.

    With over 55% of the total traded and due to the growth of the investor’s activity in Europe, Poland maintained its dominant position in 2019. In the second position in the region the Czech Republic stood, with 22% of the total.

    Note the differences between the sources of capital in the countries of the region. While Poland has very few local investors, and those in Europe own about 50%, in Hungary the local capital generated 80% of the transactions, and in the Czech Republic 40%.

  • Office take-up jumps in 2019 and reaches the maximum level of the last 9 years

    Office take-up jumps in 2019 and reaches the maximum level of the last 9 years

    Expoziției Area attracted almost 15% of the total demand for office spaces registered last year in Bucharest, thus entering the top 5 areas preferred by companies to locate their offices, at a very short distance from Center-West, the most dynamic area in the last 3-4 years.

    The companies rented last year in Bucharest almost 390,000 square meters of office space, the highest level in the last 9 years. Compared to 2018, the total demand in Bucharest increased by 16%.

    It should also be mentioned that the net demand – new contracts and extensions of the existing areas, increased more than twice, compared to 2018, to 212,000 square meters and represented more than half of the total rented volume.

    The largest office areas in Bucharest were rented in CBD (17.4% of total demand), in Center (15.1%), Center – West (14.9%), Expozitie North (14.6%) and Floreasca – Barbu Văcărescu (11.4%).

    JLL remained the leader of the national office market in 2019, with a market share of over 20.4% of the total transactions carried out through the real estate consultants.

    Sub-market Gross take-up în 2019 (sqm) % of the total
    CBD 67,615 17.4
    Center 58,634 15.1
    Center–West 58,031 14.9
    North Expozitiei 56,840 14.6
    Floreasca – Barbu Vacarescu 44,406 11.4
    Center – South 27,540 7.1
    Dimitrie Pompeiu 25,880 6.7
    West 24,488 6.3
    Pipera Nord 17,619 4.5
    Baneasa – Otopeni 2,700 0.7
    East 2,509 0.6
    Center – North 2,245 0.6
    Total 388,507 100

    Vacancy rate reached 8%

    The vacancy rate in the modern office buildings in Bucharest at the end of 2019 reached about 8%, slightly lower than the previous quarter (8.64%), amid the increase in demand in the fourth quarter (107,000 square meters, of which over 80% net demand), and the delivery of a single new building.

    In the sub-markets, still the highest unemployment rate in 2019 was in Pipera – North, respectively 40%, followed by the East, with 16% and Baneasa – Otopeni, with just over 14%.

    At the opposite end, the lowest vacancy rate in 2019 was recorded in the Center (1.1%), West (2.1%) and Floreasca – Barbu Văcărescu (2.5%).

    10 office projects were completed in 2019

    In 2019, 10 office projects totalling almost 280,000 square meters were completed in Bucharest, double compared to 2018 (141,000 square meters).

    Most deliveries took place in Center-West (almost 100,000 square meters, respectively 35% of the total area delivered), followed by Floreasca – Barbu Vacarescu over 53,000 square meters, respectively about 19% of deliveries) and West (47,000 square meters), 17% of deliveries).

    Project Sub-market Developer Area (sqm)
    Renault Bucharest Connected West Globalworth&Elgan Group 47,000
    The Mark CBD S Immo 25,500
    The Bridge phase 2 Center – West Forte Partners 21,271
    Business Garden Bucharest Center – West Vastint 41,000
    Oregon Park cladirea C Floreasca-Barbu Vacarescu Portland Trust 25,000
    Timpuri Noi Square 3 Center Vastint20,000
    Expo Business Park Expozitiei Portland Trust 38,000
    The Light Center – West River Development 21,600
    Sema Office Berlin Center – West River Development 14,900
    Equilibrium phase 1 Floreasca -Barbu Vacarescu Skanska 20,600
    Total     275.000

    18% increase in demand

    At the national level, about 470,000 square meters of office space were rented, of which the net demand, respectively new contracts and extensions of the already existing areas, represented the largest share. Total demand increased in 2019 by 18% compared to 2018 when a level of 400,000 square meters was recorded.

    The average value of transactions with office spaces nationwide was 1,560 square meters.

    Net demand in 2019 was 280,000 square meters, growing almost 3 times compared to 2018.

    At national level, Bucharest attracted almost 83% of the total demand for office space, followed by Cluj-Napoca (6.5%), Timisoara (4.4%) and Iași (3.2%).

    By activity areas, by far the largest share of the demand for office space at the national level came from the IT&C sector, covering almost 40% of the rented space in 2019. The second place was the computer & high-tech sector, with 15.6%, followed by banking insurance & financing, with 8.4% and retail & consumer goods, with 7.4%.

    In comparison, in 2018 the highest weights in the total demand for office spaces were held by the IT&C sector, with over 35%, the professional services sector, with about 10%, banking, insurance & financing, with over 7% and computers & high-tech, with almost 6%.

    City Gross take-up (sqm) % of the total
    Bucharest 388,507 82.8
    Cluj-Napoca 30.552 6.5
    Timisoara 20,468 4.4
    Iasi 15,000 3.2
    Brasov 7,280 1.6
    Craiova 4,670 1.0
    Ploiesti 3,000 0.6
    Total 469,477 100
  • Deloitte: The global commercial real estate industry continues to grow

    Deloitte: The global commercial real estate industry continues to grow

    Global commercial real estate leaders are optimistic about the industry’s prospects over the coming year, despite global economic volatility, according to Deloitte 2020 Commercial Real Estate Outlook.

    76 percent of respondents expect a positive evolution of the industry in the next period. The survey shows that that the tenant experience has become a top priority for most commercial real estate leaders, with a focus on investment in new technologies.

    Three-quarters of the respondents are optimistic and very optimistic about the industry’s performance over the next year, 14 percent are neutral and 10 percent are pessimistic. Respondents in Asia are the most optimistic, followed by those in North America and Europe.

    “The high level of optimism among the commercial real estate players is not surprising. In times of economic volatility, the investors’ attention goes towards tangible, high quality assets, which provide a medium or long-term investment horizon. When sudden economic changes occur, the real estate industry typically reacts within six to 12 months. In Romania, the commercial real estate sector is one of the most stable, given that demand is still higher than the supply. Considering the competition on the labor market, on one hand, and the consumption increase, on the other hand, the interest for office and commercial spaces is natural and will remain high over the next period,” said Alexandra Smedoiu, Partner, Deloitte Romania, Real Estate Industry Leader.

    In this year’s outlook, Deloitte experts explore a new element, the impact of the new technologies that are reshaping tenants and end users’ experience, such as AI (artificial intelligence) or IoT (Internet of Things).

    In this context, 92 percent of respondents plan to maintain or increase their tenant experience-related technology investments. As for the smart buildings, they will become the norm over the next five years, according to approximately three-quarters of respondents.

    This year’s commercial real estate outlook surveyed 750 executives – owners/operators, developers, brokers and investors – in ten countries form Europe, Asia, Australia and North America.