Rising potential for green developments

With GDP growth outperforming neighbouring CEE countries by a significant extent, 2017 was very good for the real estate market in Romania, especially for the office, investment and land segments. According to Colliers International’s latest report, the market’s dynamism will be extended through 2018, supported by new demand and trends in the Capital and especially in the major regional cities in the country.

2018-04-02 13:01:41

In 2017, GDP grew by seven per cent due to private consumption and good results from services, manufacturing and agriculture. The main driver of consumption was wage growth stemming from government policies and a tightening labour market. We believe the increased wages will prove to be sustainable given the higher gap between productivity and labour costs in Romania compared to most countries in the region.

"In 2018, GDP growth will slow down to a more sustainable level (around five per cent) because of reduced fiscal stimulus, monetary policy tightening, accelerating inflation, a higher tendency for saving and a weaker RON, issues that will pressure consumer confidence, not just real wages. We also expect that the major regional cities in Romania (Cluj-Napoca, Timisoara, Iasi, Brasov) will contribute with a higher share of GDP over the next years. The good quality of life they offer influences the migratory movement of the population at the expense of the Capital, and the low operating costs combined with their large number of IT&C students could cause large companies to expand to the rest of the country", according to Silviu Pop, Head of Research at Colliers International Romania.

Economic growth has encouraged investors′s interest in Romania, which has led to a qualitative improvement of the market. However, the extended negotiation phase postponed some transactions for 2018, with liquidity in 2017 remaining almost unchanged at around 960 million Euro. The largest transactions were the partnership between Iulius Group and Atterbury Europe (estimated at 200 million Euro) and the sale of Radisson Blu to Cerberus Capital Management and Revetas Capital (169 million Euro).
2018 will be a turning point for the investment market, especially from the perspective of the office segment. Whereas office buildings which changed hands from 2015 to 2017 had an average surface of 20,000 sqm, the pipeline for the next period includes projects with an average surface area of over 50,000 sqm. Therefore, the volume of investment in the office market could increase from 160 million Euro in 2017 to 500 million Euro in 2018. Also, the total volume of investment for this year is forecast to exceed the one billion Euro threshold, and the yield for retail, office and industrial projects could see a 25-50 basis points compression.

In Bucharest, the office market experienced a moderate increase, registering new deliveries of 123,000 sqm which led to a total stock of modern office buildings of 2.3 million sqm. This lower-than-expected outcome is the result of delays caused by a tight labour market, an overstretched construction segment and developers wanting to improve their pre-lease percentage. However, the total take-up for Class A office buildings amounted to 320,000 sqm, as the net take-up exceeded 150,000 sqm, both quite solid results, with the latter a multi-year high. The IT&C segment remained the main driver of demand, generating 44 per cent of the rental activity (140,000 sqm). The most active areas were Floreasca/Barbu-Vacarescu and CBD (19 per cent of total transactions), followed by Piata Presei/Bulevardul Expozitiei and Centre-West.

As developers are becoming increasingly cautious, 185,000 sqm of A-class offices will be delivered this year, with a gross take-up forecast at around 300,000 sqm, with a net take-up of 135,000 sqm. The infrastructure constraints faced by the northern area of Bucharest will result in the expansion of the stock in areas such as Centre-West or focusing on the new hub in Expozitiei. At the same time, the magnetism of regional cities will also be supported by a generous pipeline: if the total office stock in the four major regional cities is now 3.5 times lower than that of Bucharest, it will increase in 2018 with 150,000 sqm, which will reduce the gap to the Capital.

In 2017, the total value of land transactions for real estate projects (excluding the industrial segment) increased significantly from 2016, exceeding the 350 million Euro threshold at national level, the Colliers' report shows.

About two thirds of this value were ascribed to the Capital, where land transactions for residential development represented more than half of the investment volume, while the rest was almost equally split between retail and office.

"2018 will be at least as dynamic as the previous year, with many transactions under negotiation. However, given that a lot of developers have already secured a good land bank, they might focus instead on developing already-planned projects rather than on new acquisitions, so new demand might be a bit lower. Developers will also head to major regional cities for office and residential developments due to increased interest from tenants/buyers, but also to smaller towns with a population of less than 100,000 inhabitants, which have a shortage of modern retail schemes", Pop concluded.