The first half of the “pandemic year” closed with a total value of investment transactions worth 408 million euro in Romania, around 18% above the first semester of 2019, with office assets accounting nearly 86% of volumes, according to Colliers International’s market report for the first semester of 2020. Still, the outlook is uncertain since several large big-ticket items have either been frozen or fell through. On the opposite pole, the local land market continues to see deals closing and significant interest.
2020 was expected to be the best year in the post-crisis cycle for the real estate investment market in Romania, Colliers International consultants say, but the coronavirus pandemic context slowed its performance in the first half of the year. At the same time, several large transactions, in excess of 100 million euro, including one that would have set a record for the local market in terms of size, have been postponed in the current context or have even been cancelled.
“The predictability of revenue streams remains the biggest issue over the short term for offices and hotels in particular. Nevertheless, there is now more capital than ever due to liquidity injections from central banks and fiscal programs from governments. Consequently, there is a strong case that investment activity will snap back once occupancy returns around normal levels”, explains Mihai Pătrulescu, Senior Associate Investment Services at Colliers International.
There is potential to see some opportunistic or value-add transactions
In spite of a lack of benchmark trades in Romania, the CEE trend of higher yields as well as deteriorating sovereign risk for the country would have offered arguments to see a rise for both office and retail assets in Romania, but we increased only the latter. We base our decision on market talk to keep office yields unchanged (i.e. levels yet to be tested by the market in the new context) as well as the fact that before the coronavirus issue, quite a few large deals were in fairly advanced stages at below 7% yields.
New plots are put up for sale with rather normal prices, as if the pandemic did not exist
In the land market, the activity is almost normal and some deals even went ahead during the lockdown period. Demand from retail players has arguably been the best in the first semester of the year. Though demand for plots geared at big shopping centers/malls has indeed stagnated, retail park developers and big box owners all continued to look towards new projects in various parts of the country that have a subpar offering of modern retail spaces. We even have a new entry on this space that surfaced during the lockdown period.
”A rising category on the residential side after the COVID-19 lockdown is that of houses: hence, several developers are also looking at land plots on the outskirts of major cities, where prices are also lower. Offices are a different story: given the healthy pipeline, particularly in Bucharest, and uncertainties on the leasing side for instance, related to work from home and other aspects, many buyers are in wait-and-see mode. Still, even here, those following a strategy of developing and selling must continue to look for new projects. Hotels, which were one of the hot areas before the coronavirus, continue to see good interest, perhaps also on account of the possible timing: buy now at a good price, develop and open the new project in around two years, when the market could be in decent shape”, says Sînziana Oprea, Director Land Agency at Colliers International.
Supply remains adequate, from various categories of sellers which have been present in the market in the last years.On the price front, Colliers International consultants expect things to remain rather flat (with potential downward adjustments only on a case-by-case basis), unless things take a sharp turn for the worse.