Real estate investors still show interest for acquisitions of new projects in Romania, even in the context of the Covid-19 epidemics, shows a study conducted by Colliers International on the investment market among more than 60 real estate companies representing investment funds, developers, asset managers and banks. At the same time, almost 70% of the investors active in the land segment claim that they plan to conclude all or at least some of the transactions already on-going, according to a study dedicated to the land market conducted among 115 professionals active in this real estate segment.
The two studies are part of broader analysis of the overall real estate market outlook, based on relevant insights from decision makers from all market segments, which will be presented in the next period.
The Romanian capital remains the epicenter of investments this year
Most real estate market players are seeking to better understand the current situation before making investment decisions (64%). However, almost a quarter of participants to Colliers International’s study on the investment market declare that, should an opportunity with favorable transaction conditions arise, they would invest even considering the uncertainties of the current context.
Bucharest remains the preferred location for new investments for about 57% of respondents while over 25% are open to new investment opportunities in regional cities, which could boost the regional real estate market especially as only 5% of them currently hold properties outside Bucharest. Both Bucharest and regional cities remain venues for a buy-and-hold strategy, as most of the respondents owning properties either in Bucharest or regional cities prefer to keep them over the long term.
74% of investors expect tighter financing terms
However, investors expect tighter financing conditions and appreciate that the crisis could have long lasting effects on the real estate market, with complex implications both for future rental income as well as prices, Colliers International’s study in the investment market shows. Two thirds expect a decrease in financing availability, while 59% believe that financing costs will increase. Consequently, it is expected that good quality projects and relationship track record with the bank will matter increasingly more in the credit analysis process.
“Considering market uncertainties, securities in the transaction process are expected to become even more important and the general opinion is that representations, warranties and insurance conditions will most likely come to be even more tightened. As regards the vendor due-diligence process, there is an almost equally shared opinion between getting tighter, meaning becoming more exhaustive, and remaining unchanged, which might evidence Romanian investment market as a balanced one between sellers and buyers”, declared Anca Merdescu, Associate Director Investment Services at Colliers International.
Almost 70% of the investors active in land transactions intend to move ahead with the on-going deals
In the land market, almost 70% of the active transaction players intend to progress with all or some of the on-going deals in 2020, with 43% of respondents to Colliers International’s study in the land segment expecting to close a transaction in the next 3 months, highlighting the fact that the market is active. Furthermore, the majority of the investors who do not foresee the close of a transaction on the short-term expect to complete a deal by the end of the year. Thus, only 16% of the total interviewed do not expect to close any land deal in 2020.
In terms of the evolution of land prices, 44% of the investors interviewed expect them to decrease in the near future, while a similar share does not have a clear-cut expectation at the moment. The study also reveals that the market sector the investor is acting in (be it residential, office, retail or mixed use) as well as the position in terms of seller or buyer have very little influence on the current perception of land price evolution.
“While it is still too early to draw any clear conclusions and the end-situation is still a blur, this study offers a positive twist on a complicated context, in what is a very sentiment-driven market. It suggests that if things would return more or less to normal within the next couple of months, the land market should remain in decent shape for the remainder of 2020, provided that the economic damage suffered during the lockdown has not been too extensive”, declared Sînziana Oprea, Director Land Agency at Colliers International.
Covid-19 is expected to have long lasting effects
More than 67% of investors expect that the implications of the current Covid-19 epidemics on the Romanian economy will last longer than a year, shows the Colliers International study on the investment market. However, there is a bit more optimism regarding the real estate market, with 35% counting on a recovery in less than a year, while investors forecasting implications for the real estate market for over a year are fewer (52%) than those expecting effects on the overall economy for a longer timeframe (67%). Investors are even more optimistic when it comes to their own company, with 27% expecting to recover in less than 6 months and 38% in less than a year, which can be seen as a sign of trust in their business’ viability.
“The most resilient real estate areas in terms of investments are expected to be Industrial & Logistics and Office, but the Covid-19 epidemics will bring changes in the buying preferences of investors in the long run. At the same time, Industrial & Logistic projects along with Hotels stand to gain the most interest in the medium-term, as demand for retail projects is expected to decline”, declared Mihai Pătrulescu, Senior Associate Investment Services la Colliers International.
Going forward, real estate market players expect a diverging dynamic for rental revenues. Over 80% expect retail and hotels revenues to decrease, while the industrial segment is expected to either see increases in rents (22.4%) or to maintain stable rents (58.6%). The outlook for the office segment is more unclear, as the number of respondents seeing a decrease in rents (45%) is almost matched by the number of respondents expecting unchanged rents (37%). At the same time, asset prices are broadly expected to follow the same dynamic of rental revenues, with some minor differences, as about 75% of respondents expect retail asset prices to decline for retail and hotels, while in the office and industrial segment more than 52% participants to Colliers International’s study on the investment market believe prices will remain constant.
The two studies are part of broader analysis of the overall real estate market outlook, based on relevant insights from decision makers from all market segments, which will be presented in the next period.
The Romanian capital remains the epicenter of investments this year
Most real estate market players are seeking to better understand the current situation before making investment decisions (64%). However, almost a quarter of participants to Colliers International’s study on the investment market declare that, should an opportunity with favorable transaction conditions arise, they would invest even considering the uncertainties of the current context.
Bucharest remains the preferred location for new investments for about 57% of respondents while over 25% are open to new investment opportunities in regional cities, which could boost the regional real estate market especially as only 5% of them currently hold properties outside Bucharest. Both Bucharest and regional cities remain venues for a buy-and-hold strategy, as most of the respondents owning properties either in Bucharest or regional cities prefer to keep them over the long term.
74% of investors expect tighter financing terms
However, investors expect tighter financing conditions and appreciate that the crisis could have long lasting effects on the real estate market, with complex implications both for future rental income as well as prices, Colliers International’s study in the investment market shows. Two thirds expect a decrease in financing availability, while 59% believe that financing costs will increase. Consequently, it is expected that good quality projects and relationship track record with the bank will matter increasingly more in the credit analysis process.
“Considering market uncertainties, securities in the transaction process are expected to become even more important and the general opinion is that representations, warranties and insurance conditions will most likely come to be even more tightened. As regards the vendor due-diligence process, there is an almost equally shared opinion between getting tighter, meaning becoming more exhaustive, and remaining unchanged, which might evidence Romanian investment market as a balanced one between sellers and buyers”, declared Anca Merdescu, Associate Director Investment Services at Colliers International.
Almost 70% of the investors active in land transactions intend to move ahead with the on-going deals
In the land market, almost 70% of the active transaction players intend to progress with all or some of the on-going deals in 2020, with 43% of respondents to Colliers International’s study in the land segment expecting to close a transaction in the next 3 months, highlighting the fact that the market is active. Furthermore, the majority of the investors who do not foresee the close of a transaction on the short-term expect to complete a deal by the end of the year. Thus, only 16% of the total interviewed do not expect to close any land deal in 2020.
In terms of the evolution of land prices, 44% of the investors interviewed expect them to decrease in the near future, while a similar share does not have a clear-cut expectation at the moment. The study also reveals that the market sector the investor is acting in (be it residential, office, retail or mixed use) as well as the position in terms of seller or buyer have very little influence on the current perception of land price evolution.
“While it is still too early to draw any clear conclusions and the end-situation is still a blur, this study offers a positive twist on a complicated context, in what is a very sentiment-driven market. It suggests that if things would return more or less to normal within the next couple of months, the land market should remain in decent shape for the remainder of 2020, provided that the economic damage suffered during the lockdown has not been too extensive”, declared Sînziana Oprea, Director Land Agency at Colliers International.
Covid-19 is expected to have long lasting effects
More than 67% of investors expect that the implications of the current Covid-19 epidemics on the Romanian economy will last longer than a year, shows the Colliers International study on the investment market. However, there is a bit more optimism regarding the real estate market, with 35% counting on a recovery in less than a year, while investors forecasting implications for the real estate market for over a year are fewer (52%) than those expecting effects on the overall economy for a longer timeframe (67%). Investors are even more optimistic when it comes to their own company, with 27% expecting to recover in less than 6 months and 38% in less than a year, which can be seen as a sign of trust in their business’ viability.
“The most resilient real estate areas in terms of investments are expected to be Industrial & Logistics and Office, but the Covid-19 epidemics will bring changes in the buying preferences of investors in the long run. At the same time, Industrial & Logistic projects along with Hotels stand to gain the most interest in the medium-term, as demand for retail projects is expected to decline”, declared Mihai Pătrulescu, Senior Associate Investment Services la Colliers International.
Going forward, real estate market players expect a diverging dynamic for rental revenues. Over 80% expect retail and hotels revenues to decrease, while the industrial segment is expected to either see increases in rents (22.4%) or to maintain stable rents (58.6%). The outlook for the office segment is more unclear, as the number of respondents seeing a decrease in rents (45%) is almost matched by the number of respondents expecting unchanged rents (37%). At the same time, asset prices are broadly expected to follow the same dynamic of rental revenues, with some minor differences, as about 75% of respondents expect retail asset prices to decline for retail and hotels, while in the office and industrial segment more than 52% participants to Colliers International’s study on the investment market believe prices will remain constant.
