Colliers: Romanian land market had one of its most active years in history

The volume of land sales for commercial real estate projects in Romania (excluding for traditional industrial and logistics projects) reached approximately 450 million euros in 2022, down from almost c.800 million euros a year earlier, according to Colliers estimates. Bucharest and its neighboring areas continue to be the most interesting for investors, generating two thirds of the overall volume, while in the Capital, the residential sector saw two thirds of the overall deal making activity.

“However strange it may sound, in spite of the big drop in actual land deals closed, 2022 was one of the most active years ever on Romania’s land market. To put the figures into context, 2021’s volume was the best result in the last 15 years and it came after a somewhat strange 2020, while last year’s result was more or less on par with the good years in the pre-pandemic period. Furthermore, if we look at overall activity and number of pre-contracts signed, albeit not finalized, 2022 is at the same level as 2021. That said, fewer transactions have been finalized, mostly because of the urbanistic issues”, explained Sinziana Oprea, Director Land Agency at Colliers Romania.

Another theme behind the drop in the overall volume of deals involving land plots was the overall lower interest from developers starting with the autumn months. This was when investors started looking more closely at their immediate strategy amid more and more talks about a global recession and the rising cost of risk due to increased sovereign bond yields. At the same time, residential developers noticed a cooldown in activity as the higher interest rates, inflation and uncertainties started weighing on the Romanians’ appetite to purchase new apartments. Even so, before these fears became more visible, developers closed several large, benchmark deals, according to Colliers.

“The most active areas in Bucharest in 2022 were those in the North, submarkets with established track records for investors, that yielded good results until now, like Baneasa, Straulesti, Sisesti, Poligrafiei, Pipera, but also the Centre-West region of the Capital. At the same time, a novel competitor for the residential sector is becoming more visible: buyers looking for land plots to develop last-mile/in-city logistics projects; these types of deals accounted for close 10% of the overall activity in Bucharest in 2022”, Sinziana Oprea added.

Land sales for retail and office projects accounted for the rest of the dealmaking activity in Bucharest in almost equal shares. Throughout the rest of the country, however, the figures are very different: the overwhelming majority of deals closed came from the retail sector. The most active investors came from the FMCG segment (including discounters), as well as DIY and furniture retailers. Transactions targeted both the big and the medium/small towns, with the latter mostly sought after by developers of commercial galleries/retail parks.

An interesting trend, according to the Colliers’ director, was the rise of dealmaking outside of Bucharest by comparison with the Capital when it comes to starting new transactions. This shift is likely tied to investors not wanting to tie themselves to pre-contracts in Bucharest, where there is a great deal of uncertainty surrounding urbanistic norms and approvals at the current time.

Meanwhile, land prices have remained more or less unchanged, particularly as in the first part of the year, investors were more prudent amid the war. Afterwards, the overall context ceased to be favorable in general given the persistence of uncertainties, while the increased interest rates started kicking in.

“We are expecting for Romania to enter a more complicated period for its economy in general, and most likely also for its land market. Given the rise in construction costs, we are not seeing too many new projects being started right now, which will impact future demand for land plots. Consequently, more and more developers are only on the lookout for opportunistic buys or strategic acquisitions when it comes to land. In this context, we believe that certain sellers may need to adjust their price expectations if they will want to close a deal in the following period”, the Colliers director concluded.